A firm with assets value at $10 million issues a 4 year zero-coupon bond with a par value of $15 million. Using a put option approach,
what is the value of the defaultable bond given r = .06, volatility is given as .15 and there is no dividend paid by the company?
A)
$7.83 million
B)
$8.05 million
C)
$8.89 million
D)
$9.41 million
Answer:
D
Business
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