Consider a stock of ABC Company. It has a current price of $40 and an estimated return volatility of 20% per year. The risk-free rate is 4% per year (compounded continuously).

a. Find the value of a European call option expiring in 3 months with a strike price of $42.5 using the Black-Scholes model.

b. Find the value of a European put option expiring in 3 months with a strike price of $42.5 using the Black-Scholes model.