3. Calculate the price of the first Citigroup trade in Exhibit 5.

a. Use a Binomial tree with 3 steps (1 step = 1 year). Assume cash dividends of $0.18 are paid at the end of the first and second year. Suppose the annualized volatility is 39.2%.

b. Use the Black-Scholes model with a volatility of 39.2% and a dividend yield of 2.6%.

Exhibit 5

The Nine Elephant Trades

	Underlying stock	Trade Structure	Trade Date	Expiration Date	Number of Shares	Deal Value	Premium per Share
1.	Citigroup	forward + put	1/25/08	1/21/11	11,207,051	$100,000,001	$8.92
2.	Citigroup	forward + put	1/29/08	1/29/11	11,093,197	$100,000,002	$9.01