Assume the Black-Scholes framework. For t ≥ 0, let S(t) denote the time-t price of a stock that pays dividends continuously at a rate proportional to its price. The dividend yield δ is 2%.

Let π be the time-0 price of the following 4-year European asset-or-nothing option on the stock. The option pays S(4) four years from now if S(4) is greater than 110% of S(0), and pays nothing otherwise.

You are given:

(i) Var[ln S(t)] = 0.09t, for t > 0.

(ii) The continuously compounded risk-free interest rate is 6%.

Calculate the ratio π/S(0).