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You had a meeting today at your financial analyst firm. In that meeting, one group of members is suggesting that shareholders of a financially levered
You had a meeting today at your financial analyst firm. In that meeting, one group of members is suggesting that shareholders of a financially levered firm, because of their limited liability, hold a call option to buy an asset of the firm with its exercise price at the loan amount. In contrast, the other group of members argue that shareholders of a financially levered firm hold a put option to sell an asset of the firm with its exercise at loan amount. You are wondering which side of the argument is correct. So, you are now investigating this issue. Please briefly explain your answer as to which argument is correct based on the option pricing idea. (6 points)
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