Consider a risky portfolio. The end$-$of$-$year cash flow derived from the portfolio will be either $$140,000$ or $$270,000$ with equal probabilities of $0\mathrm{.}5.$ The alternative risk$-$free investment in T$-$bills pays $4\%$ per year.

Required:

a$.$ If you require a risk premium of $6\%,$ how much will you be willing to pay for the portfolio?

b$.$ Suppose that the portfolio can be purchased for the amount you found in $($a$).$ What will be the expected rate of return on the portfolio?

c$.$ Now suppose that you require a risk premium of $10\%.$ What price are you willing to pay?