(1) [Two-step binomial call option valuation on non-dividend paying stock]

Consider a two-step binomial call option pricing with the following parameters. Determine both

European and American style option values.

K=$40, S₀= $42, u = 1.05, d=0.95, r = 0.05, dt (time for each step) = 3 month

2) [Two-step binomial call option valuation on dividend paying stock]

Consider a two-step binomial call option pricing with the following parameters. Determine both

European and American style option values.

K=$40, S₀= $42, u = 1.05, d= 0.95, r = 0.05, dt (time for each step) = 3 month.

The stock price decrease by $1 for each node at expiration due to dividend payment. For

example, Suu = u*u*S₀- $1. Similarly, for Sud and Sdd.