Is this individual risk averse-risk neutral or risk seeki

Reference no: EM13179445

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 indivdual's 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.

Reference no: EM13179445

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