EVO Limited is just about to introduce a new product to the market. The company has a zero-coupon debt outstanding with a face value of $600,000 and one year to maturity. The current market value of EVO’s assets is $550,000. It is expected that, as a result of introducing the new product, the assets in the company will be worth either $500,000 or $1,000,000 in one year. The annual risk-free interest rate is 6%. View the shareholders’ equity as a call option.

What is the underlying asset and the current value of underlying asset of this option? What are the values of the option’s exercise price and time to expiry?

What is the market value of the shareholders’ equity? (Hint: use the binomial option pricing method).