Question

You work for a local startup company Go Wildcats Inc. Its total
assets are worth $60 million

but it has a zero-coupon bond with face value of $78 million due in
four years. The standard

deviation of the asset returns is estimated at 32% a year. The
continuously compounded risk-

free rate is 4%. Use option pricing model to show: the equity
value, bond value, and bond

yield.

d1=

d2=

N(d1)=

N(d2)=

E =

D=

RD=

Answer #1

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