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Please help me to solve this problem: At the horse races one Saturday afternoon Gavin Jones studies the racing form and concludes that the horse
Please help me to solve this problem:
At the horse races one Saturday afternoon Gavin Jones studies the racing form and concludes that the horse NoArb has a 25% chance to win and is posted at 4 to 1 odds. (For every dollar Gavin bets, he receives $5 if the horse wins and nothing if it loses.) He can either bet on this horse or keep his money in his pocket. Gavin decides that he has a square-root utility for money. What fraction of his money should Gavin bet on NoArb? What is the implied winning payoff of a $1 bet against NoArb?
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