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Problem Set 2: Random Variables4
Probability and Statistics5. 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 Variables5