The MID Index of the Italian Stock Exchange is currently at 960 and its volatility is expected to be 20% p.a. over the coming year. The dividend yield on the index is 3% p.a. and the risk-free interest rate is 5% p.a continuously compounded. A European-style derivative written on the index pays off $100 in six months if the index is lower than 1,000 at that date and zero otherwise. Use a two-step tree to calculate the value of the derivative. Note: For all calculations, round to 4 decimal digits at each step. Please show all your workings. The MID Index of the Italian Stock Exchange is currently at 960 and its volatility is expected to be 20% p.a. over the coming year. The dividend yield on the index is 3% p.a. and the risk-free interest rate is 5% p.a continuously compounded. A European-style derivative written on the index pays off $100 in six months if the index is lower than 1,000 at that date and zero otherwise. Use a two-step tree to calculate the value of the derivative. Note: For all calculations, round to 4 decimal digits at each step. Please show all your workings