Mr Pareto wants to try his hand at applying the binominal model to option pricing so that he may compare theoretical prioes with empirical ones. He desides to price ar S&P 500 index put option for this purpose. Suppose that the index is currently 1912 and has a volatility of 27%, while the risk-free rate is 1%. Compute the price of a 3-month ATM option by using a one-step binomial model if the up factor u and the down factor d are given by the following formulas: du = e-07 (a) 130 (b) 131 (o) 132 (d) 133