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The expected payoffs

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The possible payoffs from Ms. Ketchup's projects (see Section 18.3) have not changed but there is now a 40 percent chance that project 2 will pay off $24 and a 60 percent chance that it will pay off $0.

a. Recalculate the expected payoffs to the bank and Ms. Ketchup if the bank lends the present value of $10. Which project would Ms. Ketchup undertake?
b. What is the maximum amount the bank could lend that would induce Ms. Ketchup to take project 1?

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The expected payoffs for projects, project choice, and bank lending.

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For part a, you would need to construct a chart showing the the expected payoffs to the bank and the expected payoffs to Ms. Ketchup for each project. The expected payoffs for uncertain payoffs are found by multiplying the probability of ...

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