Question: Please do not post the same answer that is already on Chegg. That answer is wrong. Answer only if sure about the answer. 16. (At

Please do not post the same answer that is already on Chegg. That answer is wrong. Answer only if sure about the answer.

16. (At the track) At the horse races one Saturday afternoon Gavin Jones studies the racing form and concludes that the horse No Arbitrage has a 25% chance to win and is posted at 4 to 1 odds. (For every dollar Gavin bets, he receives $5 if the horse wins and nothing if it loses.) He can either bet on this horse or keep his money in his pocket. Gavin decides that he has a square-root utility for money. (a) What fraction of his money should Gavin bet on No Arbitrage? (b) What is the implied winning payoff of a $1 bet against No Arbitrage? 16. (At the track) At the horse races one Saturday afternoon Gavin Jones studies the racing form and concludes that the horse No Arbitrage has a 25% chance to win and is posted at 4 to 1 odds. (For every dollar Gavin bets, he receives $5 if the horse wins and nothing if it loses.) He can either bet on this horse or keep his money in his pocket. Gavin decides that he has a square-root utility for money. (a) What fraction of his money should Gavin bet on No Arbitrage? (b) What is the implied winning payoff of a $1 bet against No Arbitrage

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