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A Firm with Assets Value at $100,000 Issues a 3

Question 1

Multiple Choice

A firm with assets value at $100,000 issues a 3 year zero-coupon bond with a par value of $110,000. Interest rates are 4% and the volatility of the companyʹs assets are determined to be
) 30. If the company pays no dividend, what is the change in the value of the firmʹs debt if the value of the assets increases by $20,000?


A) $ 6,930 decrease
B) $ 7,580 increase
C) $ 8,309 decrease
D) $ 9,029 increase

Correct Answer:

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