University of London 2014 UL14/0235 Page 5 of 5 D1

Black-Scholes Option Pricing Formula C = S[N(d1)] - X[N(d2)]e-rt

Capital Assets Pricing Model (CAPM) ( ) ( )[ ]fmifi RRERRE +=

Modigliani and Miller Proposition I (no tax): Proposition II (no tax): Proposition I (with corporate tax): Proposition II (with corporate tax): Miller (1977)

( )( )

+=

d

ecUL T

TTVV 1111

D

END OF PAPER

( )1

2 1

ln / 12

S Xd tt

a n dd d t

= +

=

( )( ) EDTRRRR cdaae += 1

DTVV cUL +=

( ) EDRRRR daae +=

UL VV =