Answer Part 4, 5 and 6. If any of them are incorrect you will get a thumbs down and be reported. Becareful and good luck.

Intro The current level of a broad stock market index is 1,299 . Its dividend yield is 1% and the standard deviation of index returns is 40%. An American put option on the stock expires in 0.4 years. Its strike price is $1,310. The risk-free rate is 4% (annual, continuously compounded). Value the option using a binomial model with 2 periods of length 0.2 years each. Part 1 What is the value of d, the down-movement factor? Attempt 1/5 for 10 pts. Attempt 1/5 for 10 pts. What is the value of d, the down-movement factor? Correct u=et=e0.40.2=1.196d=et=e0.40.2=0.836 Part 2 Attempt 1/5 for 10 pts. What is the risk-neutral probability of an up movement? Correct p=ude(r)td=1.1960.836e(0.040.01)0.20.836=0.4721 What is the value of the option in 0.2 years if the stock price has gone down once? Part 6 Attempt 3/5 for 10 pts. What is the current value of the option? What is the option payoff in 0.4 years if the stock price went down twice in a row? Correct Stock price: Suu=S0u2=1,2991.1962=1,857.75Sud=S0ud=1,2991.1960.836=1,299Sdd=S0d2=1,2990.8362=908.3 Option payoff: puu=max(0,KSuu)=max(0,1,3101,857.75)=0pud=max(0,KSud)=max(0,1,3101,299)=11pdd=max(0,KSdd)=max(0,1,310908.3)=401.7 Part 4 Attempt 4/5 for 9.5 pts. What is the value of the option in 0.2 years if the stock price has gone up once