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A Firm with Assets Value at $500,000 Issues a 6

Question 4

Multiple Choice

A firm with assets value at $500,000 issues a 6 year zero-coupon bond with a par value of $550,000. Using a put option approach, what is the value of the defaultable bond given r =
) 07, volatility is given as .33 and there is no dividend paid by the company?


A) $75,970
B) $245,601
C) $285,406
D) $361,376

Correct Answer:

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