Question
1. The odds of winning the Mega Millions jackpot are 1 in 259 million. A Mega Millions ticket always costs $1. Is a lottery ticket
1. The odds of winning the Mega Millions jackpot are 1 in 259 million. A Mega Millions ticket always costs $1.
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Is a lottery ticket a financial asset? Why or why not?
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If the Mega Millions jackpot is currently $350 million, calculate the expected return on a $1 ticket, using the arithmetic average method. Show your work. (Hint: treat the lottery odds as though theyre the distribution of historical returns.)
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Next, estimate the volatility of the Mega Millions ticket. Show your work.
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Najar is a risk-neutral investor: he will always take a fair gamble. What would the minimum value of the Mega Millions jackpot have to be in order for Najar to buy a ticket for $1? Show your work.
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Andy is a risk-averse investor with the utility function () = 0.9. If the Mega Millions jackpot is currently $500 million, would Andy buy a ticket for $1? Why or why not? Show your work.
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Multinational Business Finance
Authors: David K. Eiteman, Arthur I. Stonehill, Michael H. Moffett
13th edition
132743469, 978-0132743464
