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5. What if capital requires lots of savers in order to purchase it. In other words, capital projects are large. In addition, the return on
5. What if capital requires lots of savers in order to purchase it. In other words, capital projects are large. In addition, the return on the capital project is random and is private information so that only the project owner knows if the project was successful or not. If the project fails, the return on capital is zero for unsuccessful project. The cost of monitoring projects that report being unsuccessful is equal to 0 = 3. Assume that x = 7.5. Suppose the project size is 400 units of the consumption good. The probability of a successful project is 75 percent and the probability the project is unsuccessful is 25 percent. (Part a) and b) are worth three points each and part c) is worth one point.) a. Compute the expected return for a person investing in one capital project. b. Compute the expected return for a person who deposited their savings in a bank. c. Explain the difference between the two returns. 5. What if capital requires lots of savers in order to purchase it. In other words, capital projects are large. In addition, the return on the capital project is random and is private information so that only the project owner knows if the project was successful or not. If the project fails, the return on capital is zero for unsuccessful project. The cost of monitoring projects that report being unsuccessful is equal to 0 = 3. Assume that x = 7.5. Suppose the project size is 400 units of the consumption good. The probability of a successful project is 75 percent and the probability the project is unsuccessful is 25 percent. (Part a) and b) are worth three points each and part c) is worth one point.) a. Compute the expected return for a person investing in one capital project. b. Compute the expected return for a person who deposited their savings in a bank. c. Explain the difference between the two returns
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