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A Firm with Assets Value at $10 Million Issues a 4

Question 9

Multiple Choice

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

Correct Answer:

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