Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $50,000 or $150,000, with
equal probabilities of 0.5. The alternative risldess investment in T-bills pays 5%.

at If you require a risk premium of 10%, how much will you be willing to pay for the portfolio?

b. Suppose the portfolio can be purchased for the amount you found in (a). What will the expected rate of return on the
portfolio be?

c Now suppose you require a risk premium of 15%. What is the price you will be wilfing to pay now?

d. Comparing your answers to (a) and (c). what do you conclude about the relationship between the required risk premium
on a portfolio and the price at which the portfolio will sell?