You are bearish on the firms invested in ESG over the next year, so you are considering buying a six-month, K=$40, put option on the Vanguard ESG U.S. Stock ETF (ESGV). Assume that todays market price of the index is 40 and that six months from now it will either be worth 50 or 32. The true probability that ESGV goes up next year is 0.60, and the probability that it goes down is 0.40. The six-month risk-free rate is 2%. (Note: Treat the ETF simply as a stock and ignore dividends.)

1. What is the value of a six-month, $K=40, put option on a single share of ESGV today? (REPORT YOUR ANSWER IN DOLLARS. ROUND TO THE NEAREST PENNY.)

2. What is the expected return to buying the put option? (REPORT YOUR ANSWER TO THE NEAREST DECIMAL POINT).