Consider the Following Game in Which a Player Rolls a Single

question 142

Multiple Choice

Consider the following game in which a player rolls a single die. If a prime (2, 3, or 5) is rolled, the player wins $3. If a square (1 or 4) is rolled, the player wins $1. However, if the player rolls a perfect number (6) , it costs the player $14. What is $E$ and is this a good deal for the player or not?

• A) \(E \approx \$ 2.72\) it is a good deal.
• B) \(E \approx\) $ 1.67 it is a good deal.
• C) \(E \approx\) - $ 2.72 it is not a good deal.
• D) \(E \approx\)- $ 1.67 it is not a good deal.
• E) \(E \approx \$ 0.00\) it is a draw.

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Definitions:

Shares

Units of ownership interest in a corporation or financial asset that provide an equal distribution in any profits, if any are declared, in the form of dividends.

European Options

Financial derivatives that give the holder the right to buy or sell the underlying asset at a specified price only at the expiration date.

Black-Scholes Model

A mathematical model of the market for an equity, in which the price of the equity is modeled as a stochastic process, used primarily to price European style options.

Callable Bond

A callable bond is a type of bond that gives the issuer the right to repay the bond before its maturity date, at a predetermined call price.