Consider a risky portfolio. The end of year cash flow derived from the portfolio is either $80,000 or $180,000 with equal probabilities of 0.5. The alternative risk free investment in T-Bill pays 6% per year.

c. Suppose that you require a risk premium of 8%. What is the price that you will be willing to pay? What will be your rate of return and what can you conclude about the relationship between price and rate of return?