A stock price is currently $39. It is known that at the end of three months it will be either $50 or $35. The risk-free interest rate is 6% per annum with continuous compounding.

(a) Using a No Arbitrage approach and one-period binomial model, calculate the value of a three-month European put option with a strike price of $41.

(b) Using Risk Neutral probabilities, verify the price calculated in (a) above.

(8 + 2 = 10 marks)