There Are Three Projects to Consider

question 15

Multiple Choice

There are three projects to consider. Project A and B both have an expected return of $1,000,000. Project C has an expected return of $800,000. Which of the following statements best describes a risk-neutral investor?

• A) An investor who would choose to do Project A because it is closer to home, even though it has a lower risk.
• B) An investor who would choose to do Project B because it is closer to home, even though it has a lower risk.
• C) An investor who would choose to do Project B because it is closer to home, even though it has a higher risk.
• D) An investor who would choose to do Project C because it is closer to home, even though it has a lower risk.
• E) An investor who would choose to do Project C because it is closer to home, even though it has a higher risk.

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Definitions:

Subsidy

A financial contribution granted by a government or organization to support a business, industry, or activity, making it more affordable or viable.

Market Equilibrium

A state in the market where the quantity demanded by consumers equals the quantity supplied by producers, leading to a stable price for a good or service.

Socially Optimal Level

A state in which resources are allocated in the most efficient way possible, maximizing societal welfare or benefit.

Positive Externalities

Benefits experienced by third-parties or the society at large due to an economic activity, not directly involved in the transaction, such as education or vaccination.