Problem Set 2 Random Variables 4 Probability and Statistics 5 An oil wildcatter

# Problem set 2 random variables 4 probability and

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Problem Set 2: Random Variables 4
Probability and Statistics 5. An oil wildcatter owns drilling rights at two widely separated locations. After consulting ageologist, he feels that at each location the odds against discovering oil if a well is drilledare 9 to 1. A well costs \$100,000 to drill, and this is a total loss if no oil is found. On theother hand, if oil is discovered, rights to the oil can be sold for \$1,600,000. The wildcatterhas \$100,000 available for drilling expenses.Find the mean and standard deviation of thewildcatter’s profita) if the \$100,000 is used to drill a single well,(Hint: Work with profits in units of \$100,000 to simplify calculations.) b) if the wildcatter finds a partner to share costs and profits equally (each will receive 1/2of the final profit, positive or negative) and their pooled funds are used to drill wells intwo different locations. Problem Set 2: Random Variables 5