Please answer all parts. will upvote if correct. thanks!
13. Equity as an option Fat Mouse Dairy Products is a manufacturing firm, Fat Mouse's current value of operations, including debt and equity, is estimated to be 325 million. Fat Mouse has $10 miliion face-value zero coupon debt that is due in two years. The risk-free rate is 5%, and the volatility of companies similar to Fat Mouse is 50%. Fet Mouse's performance has not been very good as compared to previous years. Because the company has debt, it will repay its loan, but the company has the option of not paying equity holders. The ability to make the decision of whether to pay or not looks very much like an option. Based on your understanding of the Black-Scholes option pricing model (OPM), calculate the following values and complete the table. (Note: Use 2.7183 as the approximate value of e in your calculations. Do not round intermediate calculations. Round final answers to two decimal places.) Fat Mouse's management is implementing a risk management strategy to reduce its volatility. Compiete the following table, assuming that the gosi is to reduce the company's vobtutity to 30%. (Note: Do not round intermicdiate calculations, Round final answers to two decimal places) Complete the following sentence, assuming that Fat Mouse's risk management strategy is successfu/. If its risk management strateay is successful and Fat Mouse can reduce its volatility, the value of Fot Mouse's debt will of its stock will - and the value 13. Equity as an option Fat Mouse Dairy Products is a manufacturing firm, Fat Mouse's current value of operations, including debt and equity, is estimated to be 325 million. Fat Mouse has $10 miliion face-value zero coupon debt that is due in two years. The risk-free rate is 5%, and the volatility of companies similar to Fat Mouse is 50%. Fet Mouse's performance has not been very good as compared to previous years. Because the company has debt, it will repay its loan, but the company has the option of not paying equity holders. The ability to make the decision of whether to pay or not looks very much like an option. Based on your understanding of the Black-Scholes option pricing model (OPM), calculate the following values and complete the table. (Note: Use 2.7183 as the approximate value of e in your calculations. Do not round intermediate calculations. Round final answers to two decimal places.) Fat Mouse's management is implementing a risk management strategy to reduce its volatility. Compiete the following table, assuming that the gosi is to reduce the company's vobtutity to 30%. (Note: Do not round intermicdiate calculations, Round final answers to two decimal places) Complete the following sentence, assuming that Fat Mouse's risk management strategy is successfu/. If its risk management strateay is successful and Fat Mouse can reduce its volatility, the value of Fot Mouse's debt will of its stock will - and the value
