Suppose an asset has a risky return given by . Yi-Yi believes the return on the asset is given by , where . Kyle believes the return on the asset is given by . Kyle and Yi-Yi have the same risk averse preferences. Which of the following is true?
A) Kyle requires a larger risk premium on the asset than Yi-Yi.
B) Yi-Yi requires a larger risk premium on the asset than Kyle.
C) Kyle is more likely to purchase the asset.
D) Yi-Yi and Kyle require the same risk premium.
Correct Answer:
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