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. Fiona has two job offers when she graduates from college. Fiona 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 $20,000 plus a possible bonus of $80,000. Fiona believes that she has a 50-50 chance of earning the bonus. If Fiona takes the offer that maximizes her expected utility and she is risk-neutral, then
A) she will take the first offer.
B) she will take the second offer.
C) she is indifferent between the offers-both yield the same expected utility.
D) Indeterminate from the given information-we cannot say what she will do.

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. Fiona has two job offers when she graduates from college. Fiona 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 $20,000 plus a possible bonus of $80,000. Fiona believes that she has a 50-50 chance of earning the bonus. If Fiona takes the offer that maximizes her expected utility and she is risk-neutral, then
A) she will take the first offer. 
B) she will take the second offer. 
C) she is indifferent between the offers-both yield the same expected utility. 
D) Indeterminate from the given information-we cannot say what she will do.

Quizplus · Accepted Answer

Since Fiona is risk-neutral, she will consider the expected value of each offer. The expected value of the second offer is $20,000 + 0.5 * $80,000 = $60,000, which is the same as the fixed salary of the first offer. Therefore, she is indifferent between the two offers as both yield the same expected utility.

Refer to the Information Provided in Figure 17