You have 1000 which you can invest in a risk-free, Business Economics

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You have 1000 which you can invest in a risk-free

You have $1,000, which you can invest in a risk-free investment, earning 2% with certainty. Alternatively, you can invest in a project that has a 30% chance of losing $500, and a 70% chance of gaining $400.

(a) What is your expected wealth with each investment?

(b) What is your risk premium with each investment?

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Business Economics: You have 1000 which you can invest in a risk-free

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Business Economics: You have 1000 which you can invest in a risk-free

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