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Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $200,000 or $400,000, with equal probabilities of 0.5. The alternative

Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $200,000 or $400,000, with equal probabilities of 0.5. The alternative riskless investment in T-bills pays 4%.

If you require a risk premium of 9%, how much will you be willing to pay for the portfolio?

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