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Finance: Expected return.

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Suppose that a person won the Florida lottery and was offered a choice of two prizes: (1) $500,000 or (2) a
coin-toss gamble in which he or she would get $1 million if a head were flipped and zero if a tail.
a. What is the expected dollar return on the gamble?
b. Would the person choose the sure $500,000 or the gamble?
c. If he or she chooses the sure $500,000, is the person a risk averter or a risk seeker?

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Solution Summary

The problem deals with determining the expected return with provided probability values.

Solution provided by:
Chidi Ngene, M. Sc.
Education
  • B. Sc., University of Nigeria
  • M. Sc., London South Bank University
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