1.The market value of a firm's (risky. debt is equal to the market value of its assets less the market value of its equity calculated from the Black-Scholes pricing model. From put-call parity, an alternative interpretation of the market value of risky debt is that it is equal to:

A. Riskless discount bonds with face value equal to the book value of debt, and purchased put options on the market value of the firm's assets.

B. Riskless discount bonds with face value equal to the book value of debt, and purchased put options on the book value of the firm's assets.

C. Riskless discount bonds with face value equal to the book value of debt, and written put options on the market value of the firm's assets.

D. Riskless discount bonds with face value equal to the book value of debt, and written put options on the book value of the firm's assets.

E. Riskless discount bonds with face value equal to the market value of debt.

2.According to the option pricing framework, a pure conglomerate merger in un-related industries will:

A. Lead to technical bankruptcy.

B. Not affect shareholder value for either merging company.

C. Lead to a destruction of shareholder value for both company's shareholders.

D. Lead to an increase in shareholder value for the larger company's shareholders, but a destruction of shareholder value for the smaller company's shareholders.

E. Lead to a destruction of shareholder value for the larger company's shareholders, and an increase in shareholder value for the smaller company's shareholders.