Based on historical data you believe that the expected return on an office building in St. Louis is 8%, which is 400 basis points over the current one-year risk-free rate. You also believe that next year the building price will be either $22 million or $19 million, with equal probabilities. These are the true probabilities. Suppose you have the option to purchase the building next year for $20 million. Given your beliefs, which of the following statements is correct?

Group of answer choices

The fair value of the option is (0.5*2 + 0.5*0) / 1.04

The fair value of the option is more than (0.5* 2 + 0.5*0) / 1.04

The fair value of the option is less than (0.5* 2 + 0.5 * 0) / 1.08

The fair value of the option is (0.5*2 + 0.5*0) / 1.08

The fair value of the option is more than (0.5*2 + 0.5*0) / 1.08 but less than (0.5*2 + 0.5*0) / 1.04