A mid-sized chain restaurant is considering growing theirbusiness and opening additional restaurants in new markets. One ofthe key factors in making this decision will be the level ofinterest rates over the next few years. It is estimated that thereis a 30% chance that interest rates will go down by 2 percentagepoints, a 60% chance that they will stay the same, and a 10% chancethat they will go up by 2 percentage points. The expansion optionsthat they are considering and possible payoffs are shown in thetable below.
Which alternative is best, based on expectedvalue?
| Rates down  | Rates | Rates up |
| 2 percent | unchanged    | 2 percent |
| Open 20 restaurants | ?$200,000 | $90,000.00 | $150,000 |
| Open 10 restaurants | ?$115,000 | $40,000.00 | $80,000.00 |
| Do nothing | -$70,000.00 | $0.00 | $5,000.00 |
