The Probability Distribution of Your Winnings at a Casino's Card

question 97

Short Answer

The probability distribution of your winnings at a casino's card game is shown below.

a. What is the chance you win more than $1 if you play just once?
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b. How much should you expect to win if you play the game once?
______________
c. After breaking the bank at the casino playing this card game, you decide to open your own casino where the customers can play your favorite card game. How much should you charge the players if you want to have an average profit of $1 per play?
______________

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Definitions:

SML Approach

Refers to the Security Market Line approach, a graphical representation in the Capital Asset Pricing Model (CAPM) that depicts the relationship between risk and expected return for all securities.

Flotation Costs

Expenses incurred by a company in issuing new securities, including legal, administrative, and underwriting fees.

Computed NPV

The calculated Net Present Value based on a specific discount rate and series of cash flows.

Perpetual Cash Flows

Cash flows that are expected to continue indefinitely without an end.