An investment bank is offering a security linked to the price 2 years from today of 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 max(S^3/2-40,0). You estimate that in each of the next two periods, Bisco stock will either increase by 50% or decrease by 20%. The annual interest rate is 8%.

The investment bank is selling the derivative security for $39.440. Under the given assumptions, price another security with the following payoff.