Equity as an Option Frostbite Thermalwear has a zero coupon bond issue outstanding with a face value
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Equity as an Option Frostbite Thermalwear has a zero coupon bond issue outstanding with a face value of $20,000 that matures in one year. The current market value of the fi rm’s assets is $22,000. The standard deviation of the return on the fi rm’s assets is 53 percent per year, and the annual risk-free rate is 5 percent per year, compounded continuously. Based on the Black–Scholes model, what is the market value of the fi rm’s equity and debt? What is the fi rm’s continuously compounded cost of debt?
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