We intend to value a European put option with a strike price X=$10 and T=1 year to expiry, using a one-step binomial model, with the following parameters: u=1.2, d=0.8333. The risk-free interest rate (continuously compounded) is 3% per annum.

1. The value of the put option in the up state at time 1 is $Answer. Give your answer correct to two decimal places, or your answer will be incorrect.

The value of the put option in the down state at time 1 is $Answer. Give your answer correct to two decimal places, or your answer will be incorrect.

2. The portfolio that replicates the payoff on the put option is a Answerlongshort position in Answer units of shares and a Answershortlong position of $Answer in a riskless bond (that is investing). Give your numerical answers to this part of the question correct to three decimal places.

3. Hence the value of the put option at time 0 is $Answer. Give your answer correct to two decimal places, or your answer will be incorrect.

Do not include the dollar sign "$" in any of your numerical answers.

ST 12.00 P= ? So = 10 P= ? St = 8.33 P= ? Time 0 Time 1 ST 12.00 P= ? So = 10 P= ? St = 8.33 P= ? Time 0 Time 1