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You have $1000, and a certain commodity presently sells

A First Course in Probability | 9th Edition | ISBN: 9780321794772 | Authors: Sheldon Ross ISBN: 9780321794772 63

Solution for problem 23P Chapter 4

A First Course in Probability | 9th Edition

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A First Course in Probability | 9th Edition | ISBN: 9780321794772 | Authors: Sheldon Ross

A First Course in Probability | 9th Edition

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Problem 23P

Problem 23P

You have $1000, and a certain commodity presently sells for $2 per ounce. Suppose that after one week the commodity will sell for either $ 1 or $4 an ounce, with these two possibilities being equally likely.

(a) If your objective is to maximize the expected amount of money that you possess at the end of the week, what strategy should you employ?

(b) If your objective is to maximize the expected amount of the commodity that you possess at the end of the week, what strategy should you employ?

Step-by-Step Solution:

Solution:

Step 1 of 3:

We have $1000, and a certain commodity presently sells for $2 per ounce.

After one week the commodity will sell for either $1 or $4 an ounces, with theses two possibilities being equally likely.

  1. We have to find strategy in order to maximize the expected amount of money.
  2. We have to find strategy in order to maximize the expected amount of the commodity.


Step 2 of 3

Chapter 4, Problem 23P is Solved
Step 3 of 3

Textbook: A First Course in Probability
Edition: 9
Author: Sheldon Ross
ISBN: 9780321794772

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You have $1000, and a certain commodity presently sells