# Black-Scholes Option Pricing, Residual dividend distribution

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

N(d1) .718891

N(d2) .641713

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?

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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

N(d1) .718891

N(d2) .641713

We will use Black Scholes Pricing Formula

Value of call= S N(d1) - X * e ^{ -r(T-t) } * ...

#### Solution Summary

Calculates the value of a call option using Black-Scholes Option Pricing Model and the dividend paid using residual dividend distribution policy.