What Is the Expected Return on Equity Using the Black-Scholes

question 4

Multiple Choice

What is the expected return on equity using the Black-Scholes formula,given a zero-coupon bond that pays $250 at maturity in 4 years? Assume assets are worth $200,r = 0.05,σ = 0.30,and no dividend is paid.The return on assets is 11.5%.

• A) 10.27%
• B) 14.27%
• C) 18.27%
• D) 22.27%

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