A Risk Premium, RP, Can Be Computed with the Following $p \left( I _ { 1 } \right) + ( 1 - p ) I _ { 2 } = R P$

Multiple Choice

A risk premium, RP, can be computed with the following formula, where I1 and I2 are the two payoffs to a lottery, with probabilities p and (1-p) , respectively:

A) $p \left( I _ { 1 } \right) + ( 1 - p ) I _ { 2 } = R P$
B) $p U \left( I _ { 1 } \right) + ( 1 - p ) U \left( I _ { 2 } \right) = R P$
C) $p U \left( I _ { 1 } \right) + ( 1 - p ) U \left( I _ { 2 } \right) = U ( E V - R P )$
D) $U ( E V ) = R P$