IBN Inc. has a zero-coupon bond outstanding that matures in 10 years with a face value of $15 million. The current value of the companys assets is $20 million, and the variance of the return on the firms assets is 15% annually. The stock of IBN Inc. is trading at $49 per share and the firm will not pay cash dividend. The standard deviation of stock returns is 30% per year. The risk-free rate is 5% compounded continuously. Keep four digits after decile for the value of d1 and d2, use interpolation to calculate N(d1) and N(d2).

a). There are two European options written on the stock, a call and a put. Exercise prices of both options are $50 and maturity dates for both options are 6 months from now. Use the Black-Scholes model to calculate the value of the European call option. (5 marks) Use Put-call parity to calculate the implied value of the European put option.

b). Answer the following questions after considering the likelihood of bankruptcy: What is the current market value of the companys total equity? (5 marks). What is the current market value of the companys debt? What is companys continuously compounded cost of debt per year?

c). Assume that the company undertakes a new project which has a NPV of $5 million and does not borrow additional funds. Answer the following questions after considering the likelihood of bankruptcy ff the company undertakes the project: what is the current market value of equity? (5 marks) what is the new market value of debt? what is the new continuously compounded cost of debt (per year)?