1.) A stock is currently priced at $35 and will move up by a factor of 1.18 or down by a factor of 0.85 each period over each of the next two periods. The risk-free rate of interest is 3 percent. What is the value of a put option with a strike price of $40? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

**PLEASE NOTE** ANSWER IS NOT $10.41

Value of a put option

$______________

2.) Suppose you hold LLL employee stock options representing options to buy 10,000 shares of LLL stock. You wish to hedge your position by buying put options with three-month expirations and a $22.50 strike price. Immediately after establishing your put options hedge, volatility for LLL stock suddenly jumps to 45 percent. This changes the number of put options required to hedge your employee stock options. LLL accountants estimated the value of these options using the Black-Scholes-Merton formula and the following assumptions:

S = current stock price = $20.72

K = option strike price = $23.15

r = risk-free interest rate = 0.043

= stock volatility = 0.29

T = time to expiration = 3.5 years

How many put option contracts are now required? (Do not round intermediate calculations. Round your answer to the nearest whole number.)

Number of option contracts

______________