... (0.001)(1,000,000,000) = $1,000. The variance is σ2 = (0 .99 9) (-1 ,000,000 - 1,000)2 + (0.001)(1,000,000,000 - 1,000)2 , or σ2 = 1,000 ,99 8 ,99 9,000,000. b. What is the most Sam is willing to ... probabilities: σ2 = (0.2)(125 - 80)2 + (0.3)(100 - 80)2 + (0.5)(50 - 80)2 = $97 5. c. What would a risk-neutral person pay to play the lottery? A risk-neutral person would pay the expected ... σ2 = (0.5)(0 - 1.025)2 + (0.25)(1 - 1.025)2 + (0.2)(2 - 1.025)2 + (0.05)(7.5 - 1.025)2, or σ2 = $2.812. b. Richard’s nickname is “No-risk Rick.” He is an extremely risk-averse individual....