Suppose that you just joined the Kuala Lumpur office of Citibank Malaysia. On your first day on the job, you have been asked to value a European type of stock options. The stock is currently trading at 12.45 ringgits per share. The 3-month nominal risk-free ringgit interest rate is 4.25%. You have decided to use a Binomial Option Pricing Model to value the options. Since you need the annual volatility, you quickly collected the past 60 monthly returns, and computed the sample standard deviation of the monthly returns, and found out to be 8.55%.

(a) Find the value of a 3-month put option with exercise or strike price equal to 11.05 ringgit. :

(b) Citibank also asked you to value an exotic option that will pay 5.0 ringgit in 3 months if the stock price in 3 months is higher than 12.50 ringgit per share. The option will not pay any amount if the stock price in 3 months is lower than or equal to 12.50 ringgit per share. There are no other payments associated with the option. Find the value of the exotic option.