Corporate finance: Black-Scholes Option Pricing Model; Residual dividend distribution policy
1) What is the value of a 9-month call with a strike price of $45 given the Black-Scholes Option Pricing Model and the following information?
Stock price $48
Exercise price $45
Time to expiration .75
Risk-free rate .05
2) Chandler Communications' CFO has provided the following information:
? The company's capital budget is expected to be $5,000,000.
? The company's target capital structure is 70 percent debt and 30 percent equity.
? The company's net income is $4,500,000.
If the company follows a residual distribution policy (with all distributions in the form of dividends), what portion of its net income should it pay out as dividends this year?© SolutionLibrary Inc. solutionlibary.com 9836dcf9d7 https://solutionlibrary.com/business/finance/corporate-finance-black-scholes-option-pricing-model-residual-dividend-distribution-policy-7dkv
Stock Price= S= $48.00
Exercise price = X= $45.00
Time to expiration = T-t= 0.75 year
Risk free rate = r = 5.00% or 0.05
N is the cumulative normal distribution function
X * e ^ -r(T-t) = 43.3437 =45x e ^ (-0.05x0.75)
Value of call= S N(d1) - X * e -r(T-t) * N(d2)= $6.6926 =48 x 0.718891 - ...