Question 2 only. Question 1 here for information. Thank you!

1. Marie Claire wants to buy a financial product linked to the potential market appreciation of the SPY ETF. The financial product (the ``note'') expires in 1 year. The payoff of the note is:

$100+$100 Min {max(()(0)1,0),0.10)} (1)

Here, S(T) is the value of SPY in one year, and S(0) is the value of SPY at inception (now). Sketch carefully the payoff as a function of the ratio S(T)/S(0). Show that the payoff consists of $100 in cash (like a bond), plus an additional ``coupon'', or payment, linked to the 1-year return of SPY capped at 10% of the notional amount (i.e. $10).

2. Assume that the volatility of SPY is 40% and that the dividend yield is 2% and that the interest rate is of 5% per year, simply compounded. How much should Marie Claire pay for the note?