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