1.A firm is issuing two-year debt in the amount of $200 000. The current market value of the assets is $300 000. The risk-free rate is 6 per cent, and the standard deviation of the rate of change in the underlying assets of the borrower is 10 per cent. Using an options framework, determine the following:

the current market value of the loan the risk premium to be charged on the loan. LO 10.10