Problen 15-12 Equity Vieved as an Option A. Fethe Inc. is a custom manufacturer of guitars, mandolins, and other stringed instruments and is located near Knoxville, Tennessee. Fethe's current value of operations, which is also its value of debt plus equity, is estimated to be $7 million. Fet e has s3 millon ace value zero coupon debt that is due in 2 years. The risk- ree rate is 8% and the standard deviation o returns or companes similarto Fethe S60 Fe e so ners e ter equity ve ment as an option and they would like to know the value of their investment. Using the Black-Scholes option pricing model. how much is Fethe's equity worth? In your calculations round normal distribution values to 4 decimal places. Round your answer to two decimal places. million b. How much is the debt worth today? What is its yield? Round your answer for the debt worth to two decimal places. Round your answer for the yield on the debt to one decimal place. Debt worth today: Yield on the debt: million c How would the equity value and the yield on the debt change if Fethe's managers could use risk management techniques to reduce its volatility to 40%? In your calculations round normal distribution values to 4 decimal places. Round your answer for the equity worth to two decimal places. Round your answer for the yield on the debt to one decimal place. New equity worth: New yield on the debt Can you explain this? The value of the stock goes down and the value of the debt goes up because with lower risk, Fehe has niliv select- of a chance of a home run