Capped doubling payout from coin tosses
Question
Samuel tosses a fair coin until the first tail appears; let be the total number of tosses, including that tail. He is then paid dollars. What is his expected payout?
Short answer
$7. For the payout has probability , contributing $1 each, so $5 in total. The cap of $64 applies when , which has probability , adding $2.
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- Expectation, Mean, and Variance
- Conditional Expectation and Variance Revisited
- Option Mechanics: Calls, Puts, Moneyness, Intrinsic Value, and Exchange vs. OTC Markets
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