Two investments have the same expected profit

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Reference no: EM13833948

Imagine you have $20000 and you are willing to invest. 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 loose 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: EM13833948

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