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1. An investment costs $160 and offers a payoff of $200 with probability p and 0 with probability 1-p. Time-equivalent Treasuries offer an interest rate

1. An investment costs $160 and offers a payoff of $200 with probability p and 0 with probability 1-p. Time-equivalent Treasuries offer an interest rate of 7%. a. What is the promised return of the investment? b. What is the probability of default?

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