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Suppose that the observed spread between the yield on a 4-year zero-coupon riskless bond and the yield on a 4-year zero-coupon bond issued by a
Suppose that the observed spread between the yield on a 4-year zero-coupon riskless bond and the yield on a 4-year zero-coupon bond issued by a corporation is 1.35%. By how much (as a percentage) would the Black-Scholes-Merton model overstate the value of a 4-year European option sold by the corporation?
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