Risk analysis Solar Designs is considering an investment in an expanded product line. Two possible types of expansion are under review. After investigating the possible outcomes, the company made of in the following table: The pessimistic and optimistic outcomes occur with a probablity of $25\%,$ and the most likely outcome occurs with a probability of $50\%.$

a$.$ Determine the range of the rates of return for each of the two projects.

b$.$ Which project is less risky?

c$.$ If you were making the investment decision, which one would you choose? What does this imply about your feelings toward risk?

d$.$ Assume that expansion B$\text{'}$s most Iikely outcome is $21\%$ per year and that all other facts remain the same. Does this change your answer to part $c?$

a$.$ The range for the rate of retum for expansion $A$ is $\%.($Round to the nearest whole number.$)$

The range for the rate of return for expansion $B$ is $\%.($Round to the nearest whole number.$)$

b$.$ Which project is less risky? $($Select from the drop$-$down menus.$)$

$$ is less risky because it has a $$ range for the rate of return.

c$.$ If you were making the investment decision, which one would you choose? What does this imply about your feelings toward risk? $($Select the best answer below.$)$

A$.$ Since the most likely return for both projects is the same, you can choose either project regardless of your risk preference.

B$.$ Choose expansion $B$ because it has a higher optimistic rate of return regardless of its risk.

C$.$ Since the average retum for both projects is the same and the initial investments are equal, the answer depends on your risk preference. Since the returns on Project B are more volatile, so a risk$-$averse investor would prefer Project $A.$

D$.$ Choose expansion A because it is less risky and thus a better investment.

Assume that expansion B$\text{'}$s most likely outcome is $21\%$ per year and that all other facts remain the same. Does this change your answer to part $c?$

A$.$ No$.$

B$.$ Yes.

C$.$ Not enough information to answer.

Data table

$($Click on the icon located on the top$-$right corner of the data table be copy its contents into a spreadsheet.$)$

$\backslash$table$[[,$Expansion A Expansion B$],[,$Amount,Amount$],[$Initial investment,$$13,000,$$$13,000$