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A Risk Premium, RP, Can Be Computed with the Following

Question 19

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(I1) + (1-p) I2 = RP
B) pU(I1) + (1-p) U(I2) = RP
C) pU(I1) + (1-p) U(I2) = U(EV-RP)
D) U(EV) = RP

Correct Answer:

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