James has an opportunity to buy shares in a start-up company. The shares have a 0.5 chance of being worth 10 and a 0.5 chance of being worth 70in one year. His utility function is illustrated in the diagram. 3 g 5 U(Wealth) C U($70) = 140 0.1 U($10) + 0.9U($70) = 133 U($40) = 120 0.5U($10) + 0.5U($70) = U($26) = 105 ($10) = 70 t 5 s 5 a a O 10 26 40 64 7O Wealth, $ ~.,J Risk premium Which of the following statements is true? 0 The risk premium shows that James would buy at any price below 40. O The risk premium shows that James would have negative expected utility if he buys the stock at a price of 40. 0 At a price of 28 James would be risk neutral No other answer given here is correct