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Question 3 A firm is borrowing a two-year zero-coupon business loan from your bank with a repayment obligation of $7.582 million. You estimate that the
Question 3 A firm is borrowing a two-year zero-coupon business loan from your bank with a repayment obligation of $7.582 million. You estimate that the market value of the firm's total assets is $9.256 million. Risk-free interest rate is 3%, and the standard deviation of the rate of change in the underlying assets of the borrowing firm is 26%. Using the options framework, determine the following: a) The current market value of the loan. b) The interest rate to be charged on the loan. Note: Keep 6 decimals during all your calculations, but round your final answer to last dollar for debt value and 4 decimals for interest rate on the loan
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