What is the expected dollar return on the gamble

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1. Suppose that a person won the state lottery and was offered a choice of two prizes:

(1) $500,000 or

(2) a coin-toss gamble in which he/she would get $1 million for heads and zero for tails.

What is the expected dollar return on the gamble?

2. What is the effective annual rate (EAR) if the stated rate is 8 percent and compounding occurs semiannually?

Reference no: EM131631783

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