In which of the two countries should entrepreneur invest

Reference no: EM131915990

Problem

An entrepreneur has an idea for a profitable project, but she is unsure about where to carry it out. She could implement it in Russia, where there is a possibility of political turmoil with a probability of 0.5. If there is no political turmoil, the entrepreneur's project obtains a return of 200 euros; if there is political turmoil, the entrepreneur gets nothing. The same project could also take place in Belgium, where the entrepreneur can obtain a return of 110 euros with certainty. The entrepreneur is risk neutral. Suppose that the project would cost the same to undertake in either country, and that the entrepreneur's only motivation is to maximize expected profits. In which of the two countries should she invest? Briefly explain your answer.

Reference no: EM131915990

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