Suppose a Person Must Accept One of Three Bets

question 76

Essay

Suppose a person must accept one of three bets:
A. 0.5 chance of winning $100 and 0.5 chance of losing $100.
B. 0.75 chance of winning $100 and 0.25 chance of losing $300.
C. 0.9 chance of winning $100 and 0.1 chance of losing $900. Show that all of these are fair bets.

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Definitions:

Retained Earnings

Profits that a company has earned to date, less any dividends or other distributions to shareholders, reinvested in the business.

Measure Of Liquidity

Indicators that demonstrate a company's ability to cover its short-term obligations with its liquid assets.

Debt-Equity Ratio

A gauge of how much a corporation leans on debt, by dividing all owed sums by the total equity of its stockholders.

Inventory Turnover

A financial ratio that shows how many times a company's inventory is sold and replaced over a period.