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A Firm with Assets Value at $20 Million Issues a 10

Question 10

Multiple Choice

A firm with assets value at $20 million issues a 10 year zero-coupon bond with a par value of $22 million. Using a put option approach, what is the value of an insurance contract on the bond given r = .05, volatility is given as .18 and there is no dividend paid by the company?


A) $0.82 million
B) $1.27 million
C) $2.23 million
D) $2.98 million

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