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Question 5 Consider the following two investment alternatives: First, a risky portfolio that pays a 1 5 % rate of return with a probability of

Question

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

9 %

3 %

1 %

6 %

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