The revision booklet says the first term in the expression corresponds to the value of the put option that makes a fixed payment of K if the share price at time T is below K but we have fixed payment K = 1000 and condition K = 2 so how come you can just put the K = 1000 rather than the 2 in the pricing formula?
Picky me, but Question 8 I think I've worked it out: slightly unhelpful double-use of the letter K in the revision book. If we say instead that fixed payment is D, K is still used for the strike price of the stock in d2. So D=$1000 covers the size of the payment needed, K=$2 is still the benchmark to see whether D needs to be paid. D=1000 K=2 pt=D (e^(-0.02(2-t))) * PHI(-d2) where d2 = (ln(St/K) - 0.025(2-t))/0.3(root(2-t))