A binary option is an option which pays you 1 if a certain event happens, and 0 otherwise. Suppose there are two time periods t=1,2. You buy the option in t=1, and it pays you in t=2. In the second period, the market return r m is normally distributed, with expected return E [r m] = 0.06, and and standard deviation m = 0.08. The risk-free rate is rf = 0.02. Consider a binary option, which pays 1 if the market's

return is above 0.06, and 0 otherwise.

Calculate the expected payoff of the binary option (note: the payoff means how much you expect to make from holding the option, ignoring how much you paid upfront to get it)