An analyst is interested in using the Black-Scholes model to value call options on the stock of Bearcat, Inc. The analys

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An analyst is interested in using the Black-Scholes model to
value call options on the stock of Bearcat, Inc. The analyst has
accumulated the following information: The price of the stock is
$40 The strike price is $44 The option expires in 3 months The
variance of the stock’s returns is .16 The risk-free rate is 7
percent
Using the Black-Scholes option pricing model, what is the value
of the call option for Bearcat, Inc.?
For Bearcat Inc.'s call option, what would you expect to pay for
this option if management was changed at the top levels of Bearcat
following a takeover, and the new management team engaged in
riskier types of projects and capital spending, thus, increasing
the overall variability of returns for the underlying stock?
What if Bearcat's new management team cut the dividend, what
would you expect to see happen to the price of the call
option?