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Sunburn Sunscreen has a zero coupon bond issue outstanding with a $11,000 face value that matures in one year. The current market value of the
Sunburn Sunscreen has a zero coupon bond issue outstanding with a $11,000 face value that matures in one year. The current market value of the firm's assets is $11,300. The standard deviation of the return on the firm's assets is 36 percent per year, and the annual risk-free rate is 5 percent per year, compounded continuously.
a. Based on the Black-Scholes model, what is the market value of the firm's equity?
b. Based on the Black-Scholes model, what is the market value of the firm's debt?
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