The volatility of company ABCs assets is 30%. The current value of its assets is $50 million.
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The volatility of company ABC’s assets is 30%. The current value of its assets is $50 million. The risk-free rate of interest is 3%. If the face value of two-year maturity debt is $30 million, what is the value of the firm’s equity? Use the Merton (1974) model. What is the value of debt?
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The equity is equal to the value of a call option on firm assets wi...View the full answer
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