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Q5 [10 marks}. Suppose that we are interested in explaining the equity pre- mium puzzle using prospect theory. Suppose also that the probability weighting function

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Q5 [10 marks}. Suppose that we are interested in explaining the equity pre- mium puzzle using prospect theory. Suppose also that the probability weighting function is linear and the utilit}r function under prospect theory},r is given by (J_ $033 if :20 r: I _ 1.l]{:r)'88 if 32:10 Evaluate the following statement. \"Under the assumptions given in the question we can explain the equity premium puzzle.\

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