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Please show all work for every part, thank you ( 1 0 % ; 2 % for each subquestion ) A firm has non -
Please show all work for every part, thank you ; for each subquestion A firm has nondividendpaying equity Et: equity value at time and; for each subquestion Company ABC has nondividendpaying equity Et: equity value at time and zerocoupon debt Bt: debt value at time t; promised payment at time is $ million is the asset value of the firm at time The firm has million shares outstanding in the stock market, and the stock price is $ share. $ million, continuous time and years. a Find the implied asset volatility. b Find the continuously compounded bond vield c What is the current value of riskfree debt? d If the government is willing to provide debt guarantee ie a put option to protect the firm from bankruptcy, what is the current value of debt guarantee? e Find the implied probability of default, which is calculated as Also, zerocoupon debt Bt: debt value at time ; promised payment at time is is the asset value of the firm at time tcontinuous time asset volatility years. a If the asset value at time is what is the payoff received by shareholders at time Which group of investors bondholders or shareholders is the seller of the call option on the firm's assets? b What is the current market value of equity? c What is the current market value of risky debt? d The BlackScholes formula for pricing a European call option on a stock is where Find the formula for pricing a European put option with the same strike price hint: using putcall parity and e If the government is willing to provide debt guarantee to protect the firm from bankruptcy, what is the current value of debt guarantee?
Please show all work for every part, thank you
; for each subquestion A firm has nondividendpaying equity Et: equity value at time and; for each subquestion Company ABC has nondividendpaying equity Et: equity value at time
and zerocoupon debt Bt: debt value at time t; promised payment at time is $ million is the
asset value of the firm at time The firm has million shares outstanding in the stock market, and the
stock price is $ share. $ million, continuous time and years.
a Find the implied asset volatility.
b Find the continuously compounded bond vield
c What is the current value of riskfree debt?
d If the government is willing to provide debt guarantee ie a put option to protect the firm from
bankruptcy, what is the current value of debt guarantee?
e Find the implied probability of default, which is calculated as Also,
zerocoupon debt Bt: debt value at time ; promised payment at time is is the asset value of the
firm at time tcontinuous time asset volatility years.
a If the asset value at time is what is the payoff received by shareholders at time Which group
of investors bondholders or shareholders is the seller of the call option on the firm's assets?
b What is the current market value of equity?
c What is the current market value of risky debt?
d The BlackScholes formula for pricing a European call option on a stock is
where
Find the formula for pricing a European put option with the same strike price hint: using putcall parity
and
e If the government is willing to provide debt guarantee to protect the firm from bankruptcy, what is the
current value of debt guarantee?
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