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Problem 2. MULTIPLE CHOICE In Merton's (1974) model, credit spreads increase in both asset volatility and face value of debt. (True /False) 1. 2. A
Problem 2. MULTIPLE CHOICE In Merton's (1974) model, credit spreads increase in both asset volatility and face value of debt. (True /False) 1. 2. A two-year zero-coupon bond has a par value 100 and is priced at S85. The annual risk-free interest rate is 3%. Calculate the approximate premium of a put option on the firm's assets, assuming Merton's (1974) model. a. $15 b. $12.87 c. S9.18 d. $4.5
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