Calculate the expected utility of each project and identify the preferred project according to this criterion.

An individual is considering two investment projects. Project A will return a zero profit if conditi Show more An individual is considering two investment projects. Project A will return a zero profit if condition are poor a profit of $4 if conditions are good and a profit of $8 if conditions are excellent. Project B will return of $2 if conditions are poor aprofit of $3 if conditions are good and a profit of $4 if conditions are excellent. The probability distribution of conditions is as follows: Condtions: Poor Good Excellent Probability: 40% 50% 10% (a) Using Excel calculate the expected value of each project and identify the preferred project according to this criterion. (b) Assume that the indivduals utility function for profit is U(X) =X-0.05X2. Calculate the expected utility of each project and identify the preferred project according to this criterion. (c) Is this individual risk averse risk neutral or risk seeking? Why? Show less

QUICK QUOTE

Approximately 250 words