Financial/Analytical Question2
For each of the following 4 alternatives:
i) calculate the expected value (EV) of the coin flip option and briefly explain your logic. Note the amount certain is also an expected value (EV);
ii) calculate the minimum number of successes (HEADS) for the coin flip option to equal or exceed the amount certain;
iii) use Stat Trek to calculate the probability that the minimum number of successes above will be achieved;
(HINT: Google “Stat Trek Binomial Calculator”)
iv) for each of the 3 alternatives, which option would you choose (i.e. the “coin flips” or the “amount certain”)? Briefly explain?
ALTERNATIVE#1
a) $50,000
OR
b) 10 coin flips each of which has a
i) 50% chance of $8,500 (Heads)
ii) 50% chance of $2,500 (Tails)
EV = $ (for 10 flips)
MINIMUM NUMBER OF SUCCESSES =
STAT TREK PROBABILITY =
YOUR CHOICE of the amount certain or the Coin Flips = (brief explanation)
ALTERNATIVE#2
. a) $50,000
OR
b) 100 coin flips each of which has a
i) 50% chance of $750 (Heads)
ii) 50% chance of $100 (Tails)
EV = $ (for 100 flips)
MINIMUM NUMBER OF SUCCESSES =
STAT TREK PROBABILITY =
YOUR CHOICE of the amount certain or the coin Flips = (brief explanation)
ALTERNATIVE#3
.a) $50,000
OR
b) a 1000 coin flips with a
i) 50% chance of $76 (Heads)
ii) 50% chance of $25 (Tails)
EV = $ (for 1000 flips)
MINIMUM NUMBER OF SUCCESSES =
STAT TREK PROBABILITY =
YOUR CHOICE of the amount certain or the coin Flips = (brief explanation)
Binomial Calculator: Online Statistical Table
Use the Binomial Calculator to compute individual and cumulative binomial probabilities. For help in using the calculator, read the FrequentlyAsked Questions or review the Sample Problems.
To learn more about the binomial distribution, go to Stat Trek’s tutorial on the binomial distribution.
