# Question: Digital Organics has 10 million outstanding shares trading at 25 per

Digital Organics has 10 million outstanding shares trading at $25 per share. It also has a large amount of debt outstanding, all coming due in one year. The debt pays interest at 8%. It has a par (face) value of $350 million, but is trading at a market value of only $280 million. The one-year risk-free interest rate is 6%.

a. Write out the put–call parity formula for Digital Organics’ stock, debt, and assets.

b. What is the value of the company’s option to default on its debt?

a. Write out the put–call parity formula for Digital Organics’ stock, debt, and assets.

b. What is the value of the company’s option to default on its debt?

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