Question: Just looking for the excel formulas to enter for the d1, d2. Higgs Bassoon Corporation is a custom manufacturer of bassoons and other wind instruments.
Just looking for the excel formulas to enter for the d1, d2.
| Higgs Bassoon Corporation is a custom manufacturer of bassoons and other wind instruments. Its current value of operations, which is also its value of debt plus equity, is estimated to be $200 million. Higgs has $110 million face value, zero coupon debt that is due in 3 years. The risk-free rate is 5%, and the standard deviation of returns for similar companies is 60%. The owners of Higgs Bassoon view their equity investment as an option and would like to know the value of their investment. | |||||||
| a. Using the Black-Scholes Option Pricing Model, how much is the equity worth? | |||||||
| Black-Scholes Option Pricing Model | |||||||
| Total Value of Firm | 200.00 | this is the current value of operations | |||||
| Face Value of Debt | 110.00 | ||||||
| Risk Free rate | 5% | ||||||
| Maturity of debt (years) | 3.00 | ||||||
| Standard Dev. | 60.00 | this is sigma--also known as volatility | |||||
| d1 | use the formula from the text | ||||||
| d2 | use the formula from the text | ||||||
| N(d1) | use the Normsdist function in the function wizard | ||||||
| N(d2) | |||||||
| Call Price = Equity Value | million | ||||||
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