Author Question: Assume you and your best friend set up a partnership and your lawyer tells you that as the owners, ... (Read 40 times)

dalyningkenk · **on:** Jun 29, 2018

Assume you and your best friend set up a partnership and your lawyer tells you that as the owners, you could each stand to lose your personal wealth if the business goes bankrupt. This means a partnership

A) faces limited liability. B) has little chance of succeeding.
C) faces unlimited liability. D) is not a good type of business to set up.

Question 2

You are considering playing a card game. The rules of the game are such that you pick a card from a standard deck of 52 cards and if the card is a diamond, you win 30 . The catch is, you have to pay the dealer a fee of 10 to play the game.

What is the expected value of this gamble? (Hint: In a standard deck of cards, of the cards are diamonds).

Brenm · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

C

Answer to Question 2

A deck of cards consists of 52 cards out of which, 13 are diamonds. Therefore in a random pick, the probability of picking a diamond is 13/52 = 1/4 . When a diamond is picked, the player wins 30, pays the dealer 10, and is left with 20 . The probability of not picking a diamond is 1 1/4, or 3/4 . When a diamond is not picked, the player win nothing, pays the dealer 10, and is left with -10 . Therefore, the expected value of the gamble is (1/4 20) (3/4 10) = -2.50 . Since, the expected value of the gamble is -2.50 a player loses an average of 2.50 each time he plays the game.