Problem #4: Consider a European put option on a stock, with a $65 strike and 1-year to expiration. The stock has a continuous [6 marks] dividend yield of 10%, and its current price is $42. Suppose the volatility of the stock is 21%. The continuously compounded risk-free interest rate is 2%. Use a two-period lognormal tree to calculate the following: (a) The payoff at time 2: Up movement. (b) The payoff at time 2: Middle movement. (c) The payoff at time 2: Down movement. (d) The payoff at time 1: Up movement. (e) The payoff at time 1: Down movement. (f) The option cost at time 0. (A) 16.96 (B) 15.96 (C) 13.96 (D) 14.96 (E) 12.96 Problem #4(a): Select I Part (a) choices. (A) 28.07 (B) 30.07 (C) 27.07 (D) 26.07 (E) 29.07 Problem #4(b): Select 1 Part (b) choices. (A) 35.82 (B) 37.82 (C) 34.82 (D) 36.82 (E) 38.82 Problem #4(c): Select I Part (c) choices. (A) 19.31 (B) 17.31 (C) 18.31 (D) 16.31 (E) 20.31 Problem #4(d): Select Part (d) choices. (A) 28.63 (B) 31.63 (C) 32.63 (D) 30.63 (E) 29.63 Problem #4(e): Select 1 Part (e) choices. (A) 24.71 (B) 22.71 (C) 25.71 (D) 23.71 (E) 26.71 Problem #4: Consider a European put option on a stock, with a $65 strike and 1-year to expiration. The stock has a continuous [6 marks] dividend yield of 10%, and its current price is $42. Suppose the volatility of the stock is 21%. The continuously compounded risk-free interest rate is 2%. Use a two-period lognormal tree to calculate the following: (a) The payoff at time 2: Up movement. (b) The payoff at time 2: Middle movement. (c) The payoff at time 2: Down movement. (d) The payoff at time 1: Up movement. (e) The payoff at time 1: Down movement. (f) The option cost at time 0. (A) 16.96 (B) 15.96 (C) 13.96 (D) 14.96 (E) 12.96 Problem #4(a): Select I Part (a) choices. (A) 28.07 (B) 30.07 (C) 27.07 (D) 26.07 (E) 29.07 Problem #4(b): Select 1 Part (b) choices. (A) 35.82 (B) 37.82 (C) 34.82 (D) 36.82 (E) 38.82 Problem #4(c): Select I Part (c) choices. (A) 19.31 (B) 17.31 (C) 18.31 (D) 16.31 (E) 20.31 Problem #4(d): Select Part (d) choices. (A) 28.63 (B) 31.63 (C) 32.63 (D) 30.63 (E) 29.63 Problem #4(e): Select 1 Part (e) choices. (A) 24.71 (B) 22.71 (C) 25.71 (D) 23.71 (E) 26.71