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.

a. If you require a risk premium of 5% 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 part a. What will be the expected rate of return on the portfolio?

please answer b .