1. A company has $10 million that it can invest in one of two projects. The returns of the projects are uncertain and depends on the state of the economy.

Good Economy (Probability = 0.7)

Bad Economy (Probability = 0.3)

Project A

20% returns

-10% returns

Project B

8% returns

3% returns

1. What are the expected returns of projects A and B?
2. What are the standard deviation of the returns of projects A and B?
3. Suppose an economist is able to predict with 100% accuracy whether the economy will
4. be good or bad. How much is that information worth?