III. (Equity and risk premium) 30% There are a risky asset and a risk-free asset. Each unit of the risk-free asset is exchanged for one unit of goods at date 1 and turns into R = 1 + r units of goods at date 2. Each unit of the risky asset is exchanged for p units of goods at date 1 and at date 2, with probability 7 it generates do units of goods and with probability 1 - 7 it generates di( 0 and Inc = lima-1 1-4 "-1. The investor maximizes his expected utility. Suppose 7 = 0.6, dh = 1.5, di = 0.9, p = 1, and R = 1.2. 1. What is the equity premium? 2. Find the value of o such that the equity premium can be completely explained by risk aversion