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 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? 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? 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 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? 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