Imagine you have $20000 and you are willing to invest. You have two choices: a) A safe investment that promises to pay 5% profit after 1 year. b) A risky investment that has a 20% chance you might loose half of your money. 1) How much do you expect to get paid for a year in the second investment to be indifferent between two investment choices? (the two investments have the same Expected Profit) 2) What is the Risk Premium in the second choices