Problem #3: Consider a European put option on a stock, with a $67 strike and 1-year to expiration. The stock has a continuous [5 marks] dividend yield of 9%, and its current price is $25. Suppose the volatility of the stock is 16%. The continuously compounded risk-free interest rate is 5%. Use a one-period binomial tree to calculate the following: (a) The payoff for up movement. (b) The payoff for down movement. (c) The corresponding replicating portfolio: The number of shares. (d) The corresponding replicating portfolio: The lent/borrowed amount. (e) The option premium. (A) 39.81 (B) 35.81 (C) 38.81 (D) 36.81 (E) 37.81 Problem #3(a): Select 1 Part (a) choices. (A) 49.53 (B) 48.53 (C) 46.53 (D) 47.53 (E) 50.53 Problem #3(b): Select 1 Part (b) choices. (A) 0.09 (B) 2.09 (C) -0.91 (D) -1.91 (E) 1.09 Problem #3(c): Select 1 Part (c) choices. (A) 62.73 (B) 64.73 (C) 66.73 (D) 63.73 (E) 65.73 Problem #3(d): Select 1 Part (d) choices. (A) 39.88 (B) 42.88 (C) 43.88 (D) 41.88 (E) 40.88 Problem #3: Consider a European put option on a stock, with a $67 strike and 1-year to expiration. The stock has a continuous [5 marks] dividend yield of 9%, and its current price is $25. Suppose the volatility of the stock is 16%. The continuously compounded risk-free interest rate is 5%. Use a one-period binomial tree to calculate the following: (a) The payoff for up movement. (b) The payoff for down movement. (c) The corresponding replicating portfolio: The number of shares. (d) The corresponding replicating portfolio: The lent/borrowed amount. (e) The option premium. (A) 39.81 (B) 35.81 (C) 38.81 (D) 36.81 (E) 37.81 Problem #3(a): Select 1 Part (a) choices. (A) 49.53 (B) 48.53 (C) 46.53 (D) 47.53 (E) 50.53 Problem #3(b): Select 1 Part (b) choices. (A) 0.09 (B) 2.09 (C) -0.91 (D) -1.91 (E) 1.09 Problem #3(c): Select 1 Part (c) choices. (A) 62.73 (B) 64.73 (C) 66.73 (D) 63.73 (E) 65.73 Problem #3(d): Select 1 Part (d) choices. (A) 39.88 (B) 42.88 (C) 43.88 (D) 41.88 (E) 40.88