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Consider the following two investment alternatives: first, a risky portfolio that pays a 15% rate of return with a probability of 40% or a 5%
Consider the following two investment alternatives: first, a risky portfolio that pays a 15% rate of return with a probability of 40% or a 5% rate of return with a probability of 60%; second, a Treasury bill that pays 6%. The risk premium on the risky investment is __________.
a. 1%
b. 3%
c. 6%
d. 9%
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