$($Exercise $6\mathrm{.}11$ adapted$)$ We can incorporate dividends into our model by

subtracting the dividend amount from the modeled price at the time the

dividend is paid. This adjustment affects all the price nodes downstream.

Compute the prices of European and American calls using a binomial

model with the following parameters:

$N=2,S(0)=$$$12,K=$$$10\mathrm{.}5,U=0\mathrm{.}1,D=-0\mathrm{.}05,R=0\mathrm{.}02$