Discuss the below:
You can invest in one of 3 projects: (payoffs modeled as discrete distributions)
1. Sell land and you make $60,000
2. Build an apartment: if things go well (probability = 0.70) and estimated payoff is $130,000, or $50,000 otherwise
3. Build a single family house: payoff $100,000 (probability = .80) and $75,000 otherwise
Find expected payoffs for each and rank the projects according to expected payoffs. Then find variance for each and rank projects according to risk. Does any project dominate in terms of both the expected payoffs and risk? Can any project be eliminated from consideration? Explain.