Question

Suppose each round costs $1.00 at a slot machine on which you can win $2.00 with probability p = 40%. You start playing with $10.00 and decide that you will keep playing until you either double your wealth (that is, earn another $10.00) or run out of money. What is the probability that you run out of money? (Remember: You do not need to simplify your answer.)

Answer 1

Answer:

0.0061514752

Explanation:

probability of not winning $2= 0.6

Pobability of doubling wealth: p^10= (0.4)^10= 0.0001048576

probability of running out of wealth or not earned anything: (0.6)^10= 0.0060466176

Probability of doubling or running out of wealth= 0.0001048576+ 0.0060466176 = 0.0061514752