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A financial instrument will pay off as follows: What price today would make this a fair bet? What is the maximum price that a risk-averse

A financial instrument will pay off as follows:

What price today would make this a fair bet?

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

image text in transcribed

Q 6.28. A financial instrument will pay off as follows: Stob 50% 25% 12.5% 6.25% 3.125% 3.125% Payoff $100 $110 $130 $170 $250 $500 Assume that the risk-free interest rate is O 1. What price today would make this a fair bet? 2. What is the maximum price that a risk-averse investor would be willing to pay

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