Equity as an Option Sunburn Sunscreen has a zero coupon bond issue outstanding with a $10,000 face value that matures in one year. The current market value of the fi rm’s assets is $10,500. The standard deviation of the return on the fi rm’s assets is 38 percent per year, and the annual risk-free rate is 5 percent per year, compounded continuously. Based on the Black–Scholes model, what is the market value of the fi rm’s equity and debt?

 LO.1