You are a hotel manager and you are considering four projects that yield different payoffs,depending upon whether there is an economic boom or a recession.The potential payoffs and corresponding payoffs are summarized in the following table. $$\begin{array} { | l | l | l | }
\hline \text { Praject } & \begin{array} { l }
\text { Bamn } \
( 50 \% )
\end{array} & \begin{array} { l }
\text { Recession } \
( 50 \% )
\end{array} \
\hline \text { A } & \$ 20 & - \$ 10 \
\hline \text { B } & - \$ 10 & \$ 20 \
\hline \text { C } & \$ 30 & - \$ 30 \
\hline \text { D } & \$ 50 & \$ 50 \
\hline
\end{array}$$ A risk-neutral manager will prefer project:

Question

You are a hotel manager and you are considering four projects that yield different payoffs,depending upon whether there is an economic boom or a recession.The potential payoffs and corresponding payoffs are summarized in the following table. $$\begin{array} { | l | l | l | } 
\hline \text { Praject } & \begin{array} { l } 
\text { Bamn } \
( 50 \% )
\end{array} & \begin{array} { l } 
\text { Recession } \
( 50 \% )
\end{array} \
\hline \text { A } & \$ 20 & - \$ 10 \
\hline \text { B } & - \$ 10 & \$ 20 \
\hline \text { C } & \$ 30 & - \$ 30 \
\hline \text { D } & \$ 50 & \$ 50 \
\hline
\end{array}$$ A risk-neutral manager will prefer project:

Quizplus · Accepted Answer

For a risk-neutral manager, the best project would be the one with the highest expected payoff. We can calculate the expected payoff for each project as follows:

- Project A: (0.5 x $20) + (0.5 x -$10) = $5
- Project B: (0.5 x -$10) + (0.5 x $20) = $5
- Project C: (0.5 x $30) + (0.5 x -$30) = $0
- Project D: (0.5 x $50) + (0.5 x $50) = $50

Based on these calculations, project D has the highest expected payoff of $50 and is the best choice for the risk-neutral manager.

You Are a Hotel Manager and You Are Considering Four