Question: Make the same assumptions as in Problem 15.17. Firm A decides to use some of its cash in order to purchase marketable securities. This has

Make the same assumptions as in Problem 15.17. Firm A decides to use some of its cash in order to purchase marketable securities. This has the effect of leaving its value, VA, unchanged but increasing its instantaneous standard deviation from .2 to .3. What are the new values of debt and equity?

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We can apply the Black Scholes formula Nd 1 5 468 968 d 2 185525 3 4 12... View full answer

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