Problem bank

Problem 188 of 333MediumFinanceP188

Maximize expected wealth or growth?

  1. A coin lands heads with probability 0.60.6. You may bet any fraction ff of your current wealth on heads at even money, and you will make 100 bets using the same ff each time. (a) Which ff maximizes expected final wealth, and what is the catch? (b) Which ff maximizes the long-run growth rate? (c) Compare final wealth under f=0.2f = 0.2 and f=0.4f = 0.4 on a path with 60 wins and 40 losses.