You are given the following information on a compound CallOnPut option:

• The continuously compounded risk-free rate is 5%.

• The strike price of the underlying option is 43.

• The strike price of the compound option is 3.

• The compound option expires in 6 months.
• The underlying option expires 6 months after the compound option.
• The underlying option is American.

Based on the above binomial stock price tree, calculate the value of the compound option.

(A) Less than 3.00

(B) At least 3.00, but less than 3.50

(C) At least 3.50, but less than 4.00

(D) At least 4.00, but less than 4.50

(E) At least 4.50

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Today So = 40.00 6 months SH = 50.80 SL = 33.20 12 months SHH = 64.52 SHL = 42.16 SLL = 27.56