A financial instrument will pay off as follows:

Probability	50%	25%	12.5%	6.25%	3.125%	3.125%
Payoff	$100	$110	$130	$170	$250	$500

A. What price today would make this a fair bet?

B. What is the maximum price that risk-averse investor would be willing to pay?

C. Now assume that the financial instrument costs $100. What is its expected rate of return?

D. If the prevailing interest rate on time-equivalent treasuries is 10%, and if financial default happens either completely (i.e. no repayment) or not at all (i.e. full promised payment), then what is the probability p that the security will pay off? In other words, assume that full repayment occurs with probability p and that zero repayment occurs with probability 1-p. What is the p that makes the expected rate of return equal to 10%?