The current price of a stock is $110. The stock pays dividends at a continuously compounded rate of 8%. The volatility of the stock is 32%. The price evolution of the stock follows the standard binomial pricing model. The continuously compounded risk- free interest rate is 10%.

A 9-month American put option on the stock has a strike price of $100.

The option is priced using a 3-period binomial model.

After 6 months, the stock has moved up once and down once in price. Calculate how much an investor must have invested in the risk-free asset at the end of 6 months in order to replicate the American put option.

ANSWER CHOICES:

a. 9.09

b. 12.54

c.17.26

d.19.08

e.36.84

Please provide an explanation