Consider the following equally likely project outcomes:
A)Investors will prefer project X because it potentially offers a higher profit.
B)Investors will reject both projects because the profit is too low.
C)Investors will prefer project Y because the expected return is the same as for project X but the outcome is certain.
D)Since projects X and Y have the same expected outcomes of $500, investors will view them as identical in value.

Question

Consider the following equally likely project outcomes: 
A)Investors will prefer project X because it potentially offers a higher profit. 
B)Investors will reject both projects because the profit is too low. 
C)Investors will prefer project Y because the expected return is the same as for project X but the outcome is certain. 
D)Since projects X and Y have the same expected outcomes of $500, investors will view them as identical in value.

Quizplus · Accepted Answer

Investors generally prefer a certain outcome over an uncertain one, even if the expected returns are the same. Therefore, investors are likely to prefer project Y over project X. Option A is not necessarily true as investors may value certainty over higher returns. Option B is not a valid option as the question assumes that both projects are equally likely outcomes. Option D is not necessarily true as investors may still prefer the certainty of project Y over the uncertainty of project X.

Consider the Following Equally Likely Project Outcomes