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Leading Font 1 Heading 2 1 Heading 3 1 Heading 4 T Heading 5 I Heading 6 1 Header Styles Paragraph QUESTION 2 The market
Leading Font 1 Heading 2 1 Heading 3 1 Heading 4 T Heading 5 I Heading 6 1 Header Styles Paragraph QUESTION 2 The market value of the assets of a corporation is currently $200 million but the owners wish to only use as collateral a value that will result in an interest rate of about 10%. The firm has on issue a debt outstanding that has a par value of $65 million and a due date of exactly five years. No intermediate interest payments are required. The risk-free (continuous) rate is 2.75% and the standard deviation of returns of the firm's assets is 60%. What is the value of the assets required by the debt holders to permit a fair interest rate of approximately10% (your answer should ensure that the fair interest rate is in the range of>9% and 9% and
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