An individual is considering two investment projects. Project A will return a zero prof t if conditions are poor, a profit of $4 if conditions are good, and a profit of $8 if conditions are excellent. Project B will return a prof t of $2 if conditions are poor, a prof t of $3 if conditions are good, and a prof t of $4 if conditions are excellent. The probability distribution of conditions is as follows:

(a) Using Excel, calculate the expected value of each project and identify the preferred project according to this criterion. (b) Assume that the individual’s utility function for prof t is U(X) = X – 0.05X 2. 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?

(a) Using Excel, calculate the expected value of each project and identify the preferred project according to this criterion. (b) Assume that the individual’s utility function for prof t is U(X) = X – 0.05X 2. 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?

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