Finance
posted by Blake on .
Consider a risky portfolio. The endofyear cash flow derived from the portfolio will be either $70,000 or $200,000 with equal probabilities of 0.5. The alternative riskfree investment in Tbills pays 6 percent per year.
a) If you require a risk premium of 12 percent, how much will you be willing to pay for the portfolio?
b) Suppose that the portfolio can be purchased for the amount in a). What will be the expected rate of return on the portfolio?

a) 118,421.05
b) 14%