You are given the following information about a European call option on stock ABC: 

S = $40;

X = $37;

R = 4.5% per year, continuously compounded; 

sigma = 53%; and

 T = 2 years. 

What is d1 when you use the Black-Scholes formula to price the option?

What is the call option value when you use the Black-Scholes formula to price the option ?

Suppose a firm has a single zero-coupon bond issue outstanding with face value of $90,000 due in a year. The current market value of the firm’s asset is $100,000, and the risk-free rate is 10%. The firm is taking on a risky project, which will either increase the firm value in a year to $120,000 or decrease to $80,000. What is the value of equity ? 

What is the yield on the debt? 

A firm has a single zero-coupon bond issue outstanding with a face value of $10 million. It matures in seven years. The current market value of the firm’s assets is $13 million. The volatility of the return on the firm’s assets is 50% per year. The risk-free rate is 6%, continuously compounded. What is the debt value ?

What is the continuously compounded cost of debt ?