Q23. Equity as an Option - Frostbite Thermalwear has a zero-coupon bond issue outstanding with a face value of $44,000 that matures in one year. The current market value of the firms assets is $47,600. The standard deviation of the return on the firms assets is 34 percent per year, and the annual risk-free rate is 4 percent per year, compounded continuously.

a) Based on the BlackScholes model, what is the market value of the firms equity?

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b) What is the firms continuously compounded cost of debt?

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