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Numerical Example Consider an economy with two dates (t=0,1,2) and three equally likely possible states (S1, S2, S3) at t=2. The bank has a safe asset and two potential projects with the following cash flow at t=2. S1 S2 S3 Investment amount Project 1 0.5 1 2 1 Project 2 0.4 1 2.1 1 π(Project 1) = (1-0.5) = 1/1/ πL (Project 2) = (1-0.4)= 6 30 π (Project1+ Project2) = 1/3 (2-0.9) = 110 Π

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