consider a risky investment. The end of year cash flow derived from the investment will be either $-50,000 or $250,000 with equal chance.The T-Bill pays 1% currently.

1. If you expect a 20% risk premium on such an investment, what the maximum you should pay?
2. Imagine you pay the amount computed in 1. what is your expected return on this?
3. Suppose that you expect 30% risk premium on such investment. how much are you willing to pay for this investment?
4. Based on 1 and 3 above, what do you learn about your expected return and price paid for the risky assets?