Which of the Following Is a Corporate Application of Option

question 30

Multiple Choice

Which of the following is a corporate application of option pricing?

• A)Calculating the beta of risk-free debt
• B)Calculating the agency cost of risky debt
• C)Calculating the agency cost of risky equity
• D)Calculating the alpha of risky equity

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Definitions:

Unknown Quantity

A value in mathematics or science that is not initially known but is sought through problem-solving.

Proportion

A portion, fraction, or quantity of something as it relates to the entirety.

Unknown Quantity

A variable or value in a mathematical equation or problem that is not known but can be solved for using given information.

Like Terms

Algebraic terms that have the same variable parts and powers.