ps2solutions

ps2solutions - BAYLOR UNIVERSITY HANKAMER SCHOOL OF...

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Page | 1 B AYLOR U NIVERSITY H ANKAMER S CHOOL OF B USINESS D EPARTMENT OF F INANCE , I NSURANCE R EAL E STATE Dr. Garven Name _____SOLUTIONS_____ Problem Set #2 1. Suppose you are offered a bet based upon the roll of three standard dice. These dice are fair, so for any given die, the odds of a specific number being rolled is 1/6. In order to participate in this bet, you must pay $1 up front. You select a number from 1 to 6, and if this number comes up on all three dice, then the payoff is $4. If this number comes up on two of the three dice, then the payoff is $3. Finally, if your number comes up on only one of the dice, then the payoff is $2. How much money can you expect to win or lose on average from playing this game? SOLUTION : There are 216 (6 x 6 x 6) possible outcomes for a single throw of three dice. For a specific number: there are 75 possible outcomes, where one die only will match the number; there are 15 possible outcomes, where two dice only will match; and there is one possible outcome, where all three dice will match.
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This document was uploaded on 03/08/2010.

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ps2solutions - BAYLOR UNIVERSITY HANKAMER SCHOOL OF...

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