You are considering whether to invest in a risky portfolio (P), whose end-of-year cash flow is expected to be $175,000, $110,000, or $85,000 with probabilities 0.15, 0.50, and 0.35, respectively. Your alternative option is to invest in a one-year risk-free Treasury bill (F) offering a rate of return of 5% (rf).

(10 points) Suppose your risk aversion has changed to A=2.85. Did you become more risk averse or more risk tolerant? Assuming that the mean and the standard deviation of the return on the risky portfolio remain the same as those you found in Question 3, how much return do you require as a compensation for risk? What is the certainty equivalent rate of return? Are you willing to invest in the risky portfolio