The two investments have the same expected profit

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Reference no: EM13833980

Imagine you are willing to invest $20000 and you have two choices:

a) A safe investment that promises to pay 5% profit after 1 year.

b) A risky investment that has a 20% chance you might lose half of your money.

1) How much do you expect to get paid for a year in the second investment to be indifferent between two investment choices? (The two investments have the same Expected Profit)

2) What is the Risk Premium in the second choices?

Reference no: EM13833980

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