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Recall that we can treat a firm's equity as a call option on the firm's assets with a strike price K, which equals the firm's

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Recall that we can treat a firm's equity as a call option on the firm's assets with a strike price K, which equals the firm's debt. Hoiding others constant, shareholders can NOT increase the value of their equities by decreasing the debt value decreasing the volatility of the firm increasing firm's total assets increasing the volatility of the firm

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