Sheaves Corporation economists estimate that a good business environment and a bad business environment are equally likely for the coming year. Management must choose between two mutually exclusive projects. Assume that the project chosen will be the firm$$s only activity and that the firm will close one year from today. The firm is obligated to make a $$4,500$ payment to bondholders at the end of the year. The projects have the same systematic risk, but different volatilities. Consider the following information pertaining to the two projects:

Economy Probability Low$-$Volatility

Project Payoff High$-$Volatility

Project Payoff

Bad $\mathrm{.}50$ $$4,500$ $$3,900$

Good $\mathrm{.}505,2005,800$