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Kisachek [45]
2 years ago
12

Lottery – Let $1,000 be your current wealth. There are 100 people and each buys a lottery ticket at $5. The administrative cost

of the lottery ticket per person is $5. If you win the lottery, you will get $500. There is only one person who can win the lottery. a. Define the gamble b. Calculate the expected value of the gamble c. Is this gamble favorable, fair, or unfavorable? d. Now, suppose your utility function is U = W5/2. Calculate the Certainty Equivalent and the maximum lottery price you are willing to pay. e. Now suppose that there are only 50 individuals participating in the lottery. Without calculating all the math again, what happens to the maximum price for the lottery you are willing to pay? Does it increase, decrease, or stay the same?
Business
1 answer:
MatroZZZ [7]2 years ago
6 0

Answer:

Kindly check explanation

Explanation:

Given that :

Initial wealth = $1000

Cost of lottery = $5

Winning = $500

Number of players or tickets = 100

Only one winner can emerge :

P(winning) = 1/100

P(Not winning) = 1 - 1/100 = 99/100

P __ 1/100 _________ 99/100

X : [1000 + (500-5)] ___ (1000-5)

P(X): ____1/100 _______ 99/100

X : _____ 1495 _________995

Expected value E(x) :

E(X) = ΣX*p(x) = (1/100)*1495 + (99/100)*995 = 1000

C.)

Possible winning = $500 ; p(x) = 1/100

Possible loss = - 5 ;p(x) = 99/100

500 * (1/100) = 5

-5 * (99/100) = - 4.95

Σ(5 + - 4.95) = 5 - 4.95 = 0.05

Hence, gamble is favorable since 0.05 > 0

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C. Accrued expense

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which of the following describes an important difference between general partnership and limited partnerships
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Read 2 more answers
The total utility from consuming five donuts is 9, 19, 30, 38, and 45 utils, respectively. Marginal utility begins to diminish a
Sonja [21]

Answer:

third

Explanation:

The utility for consuming the first donut is 9 utils.

The utility for consuming the second donut is the difference from the total utility for the first two and just the first donut.

U_2 = 19-9 = 10\ utils

The utility for consuming the third donut is the difference from the total utility for the first three and just the first two donuts.

U_3 = 30-19 =11\ utils

The utility for consuming the fourth donut is the difference from the total utility for the first four and just the first three donuts.

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Since the utility for the 4th donut is less than the utility for the 3rd donut, utility begins to diminish after consuming the third donut.

6 0
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Answer:

$2,896 is needed

Explanation:

external financing needed = net income - working capital needs - capital expenditures + retained earnings

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7 0
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