A Firm with Assets Value at $500,000 Issues a 6

question 4

Multiple Choice

A firm with assets value at $500,000 issues a 6 year zero-coupon bond with a par value of $550,000. Using a put option approach, what is the value of the defaultable bond given r =
) 07, volatility is given as .33 and there is no dividend paid by the company?

• A) $75,970
• B) $245,601
• C) $285,406
• D) $361,376