Refer to the information provided in Figure 17.2 below to answer the question(s) that follow. Figure 17.2
-Refer to Figure 17.2. Sam has two job offers when he graduates from college. Sam views the offers as identical, except for the salary terms. The first offer is at a fixed annual salary of $60,000. The second offer is at a fixed salary of $30,000 plus a possible bonus of $60,000. Sam believes that he has a 50-50 chance of earning the bonus. If Sam takes the offer that maximizes his expected utility and is risk-neutral, which job offer will he choose?
A) Sam will take the first offer.
B) Sam will take the second offer.
C) Sam is indifferent between the offers-both yield the same expected utility.
D) Indeterminate from the given information.

Question

Refer to the information provided in Figure 17.2 below to answer the question(s) that follow.  Figure 17.2
-Refer to Figure 17.2. Sam has two job offers when he graduates from college. Sam views the offers as identical, except for the salary terms. The first offer is at a fixed annual salary of $60,000. The second offer is at a fixed salary of $30,000 plus a possible bonus of $60,000. Sam believes that he has a 50-50 chance of earning the bonus. If Sam takes the offer that maximizes his expected utility and is risk-neutral, which job offer will he choose?
A) Sam will take the first offer. 
B) Sam will take the second offer. 
C) Sam is indifferent between the offers-both yield the same expected utility. 
D) Indeterminate from the given information.

Quizplus · Accepted Answer

Since Sam is risk-neutral, he will base his decision on the expected value of each offer. The first offer has an expected value of $60,000. The second offer has an expected value of $30,000 (fixed salary) plus 0.5 * $60,000 (50% chance of earning the bonus), totaling $60,000. Therefore, both offers have the same expected value, making Sam indifferent between the two.

Refer to the Information Provided in Figure 17