Consider the following bet a 50 chance of winning 0 a 40, Business Economics

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Consider the following bet a 50 chance of winning 0 a 40

Consider the following bet: A 50% chance of winning $0, a 40% chance of winning $10, and a 10% chance of winning $100.

(a) What is the expected value of this bet?

(b) What is the variance of the bet?

(d) Now consider a person with the following utility as a function of wealth: U = 10 × W2 , where W is wealth. Suppose that they have a current wealth is $1000. What is their current utility?

(e) What would their expected utility be if they took the bet described?

(f) Would the person described in (d) take the bet or not? What do you conclude?

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Business Economics: Consider the following bet a 50 chance of winning 0 a 40

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Business Economics: Consider the following bet a 50 chance of winning 0 a 40

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