XYZ Corporation has zero-coupon debt outstanding which has a face value of $200, due in five years. The market value of the firm's assets now doubles the face value of debt. The annualized standard deviation in firm values of comparable firms is 10% on a annual basis. The five-year T-bond rate is 5%. Estimate the value of equity, using an option pricing model (keep two decimal places).
XYZ Corporation has zero-coupon debt outstanding which has a face value of $200, due in five years. The market value of the firm's assets now doubles the face value of debt. The annualized standard deviation in firm values of comparable firms is 10% on a annual basis. The five-year T-bond rate is 5%. Estimate the value of equity, using an option pricing model (keep two decimal places).
Chapter6: Fixed-income Securities: Characteristics And Valuation
Section: Chapter Questions
Problem 15P
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