Hello,

Having difficulty with these two problems below. An example worked-out and explained would be great. Thanks!

The current price of a non-dividend paying stock is $50, volatility 20% and the continually compounding risk-free rate 5%. Use a two-step tree with 6-month steps to value

1. A European put option on the stock with a strike price of $48 that expires in 12 months
2. An American put option with the same strike and expiration.

A non-dividend-paying stock has a price is $20 with volatility of 20%. The continuously compounded risk-free rate is 6%.

1. Use the Black-Sholes-Merton model to find the price of a 12-month European call option on the stock with a strike price of $20.
2. What would be the price of a 12-month American call option with the same strike price if the stock were expected to pay a $2 dividend in 4 months and another $2 dividend in 10 months?