Question: Part I. Risk, Return, and Risk Aversion Exercise (Total 50 points) You are considering whether to invest in a risky portfolio (P), whose end-of-year cash

Part I. Risk, Return, and Risk Aversion Exercise (Total 50 points) You are considering whether to invest in a risky portfolio (P), whose end-of-year cash flow is expected to be $175,000, $1 10,000, 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% (ry).2. (10 points) If you require a risk premium of 9%, how much will you pay for the risky investment? 3. (10 points) Suppose you can purchase the risky portfolio for the amount you found in Question 2. What will be the expected value (E(rp)) and the standard deviation (op) of the rate of return on the risky portfolio

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