5. (Risk- neutral investor) A risk- neutral investor is willing to make bets with an expected return

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5. (Risk- neutral investor) A risk- neutral investor is willing to make bets with an expected return of zero. Suppose a risk- neutral investor is offered the chance to participate in a die- toss game using a “fair” die. If the die comes up 1, the payoff is $1; if the die comes up 2, the payoff is $2; …; if the die comes up 6, the payoff is $6. What is the maximum price the risk- neutral investor is willing to pay to play this game?

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Principles Of Finance With Excel

ISBN: 9780190296384

3rd Edition

Authors: Simon Benninga, Tal Mofkadi

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