You should not bid anything above $500,000 for this house. If you bid $750,000, then you will

Question:

You should not bid anything above $500,000 for this house. If you bid $750,000, then you will get the house only if it is worth $500,000, and you would therefore earn $500,000/$750,000 −1 =−33%. The other half of the time, you would not be the highest bidder so your rate of return would be 0%. Thus, your expected rate of return would be 50% . (−33%) + 50% . 0% = −16.7%.

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question
Question Posted: