Question

You paid $100 dollars to participate in a bet. If you win you will get $200 back. If you lose, you will get nothing. If the odds are 50-50, what is the mean and standard deviation of this bet (investment)?

A) 100% and 100% B) 0 % and 50% C) 100% and 50 % D) 0 % and 0 %

Answer 1

Mean = 200*50%+0*50% =	$                   100
Standard deviation:
$ Return [r-%]	Probability [p]	r*p	Deviation from mean [d]	d^2	d^2*p
$                                            200	0.5	$           100	$               100	$          10,000	$           5,000
$                                               -	0.5	$              -	$              -100	$          10,000	$           5,000
		$           100	$                   -		$         10,000
Standard deviation = 10000^0.5 =			$               100
Answer: Option [A] 100% and 100%