An investment bank is offering a security linked to the price, two years from today, for Bisco stock, which is currently at $3 per share. Denote Bisco’s stock price in two periods by S2. The security being offered pays off . You estimate that in each of the next two periods, Biscostock will increase by either 50% or decrease by 20%. The annual interest rate is 8%. Price the security.

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Max(S-40,0)