Question 1 (20 marks) Suppose Mr. T comes to you via a broker with the following proposition: "You will give me $1600 today. In return, 18 months from now I will guarantee to pay you whatever the square of the stock price of ABC is at the time. For example, if the stock price ends up at $80, I will pay you $80^2=$6400." The current stock price of ABC is $20. You know that each half year the stock price will either increase by 100% or decrease by 50%. The risk-free discount rate is 9.76% per annum. d) Assume that the stock pays a $2 dollar dividend in half-year time, what is the lowest offer price that you will accept? (6 marks)