Consider the following investment projects. A project could take place in Russia, where the probability of political
Question:
Consider the following investment projects. A project could take place in Russia, where the probability of political turmoil in the district in question is one-half. If there is no political turmoil, an entrepreneur obtains a return of 200 euros. If political turmoil does take place, the entrepreneur does not get anything. Another project could take place in Belgium, where the same entrepreneur may obtain a return of 110 euros with certainty. Suppose that the same number of euros is required to obtain a positive return from a project in either country. Assume that the entrepreneur is considering investing in a project in either Russia or Belgium. And suppose that the entrepreneur only wishes to maximize expected profit (i.e., she is risk-neutral). In which country would you predict that she will invest? Briefly explain your answer.
Step by Step Answer:
The Economics Of Microfinance
ISBN: 978-0262513982
2nd Edition
Authors: Beatriz Armendariz ,jonathan Morduch