2–2. Amiko is an investor in the stock market. She cares about both the expected value and standard deviation of her investment. Currently she is invested in a security that has an expected value of $25,000 and a standard deviation of $10,000. This places her on an indifference curve with the following formula: Expected Value = $15,000 + Standard Deviation

a. Is Amiko risk-averse? Explain.

b. What is Amiko’s “certainty equivalent” for her current investment? What does this mean?

c. What is the risk premium on Amiko’s current investment?