A financial instrument will pay off as fo
|
Probability
|
50%
|
25%
|
12.5%
|
|
Payoff
|
$100
|
$110
|
$130
|
|
Probability
|
6.25%
|
3.125%
|
3.125%
|
|
Payoff
|
$170
|
$250
|
$500
|
(a) What price today would make this a fair bet?
(b) What is the maximum price that a riskaverse investor would be willing to pay?