Trumbull, Inc $\sigma$ ) of Trumbull's Total Value Is 0

question 21

Multiple Choice

Trumbull, Inc., has total value (debt plus equity) of $500 million and $200 million face value of 1-year zero coupon debt. The volatility ( $\sigma$ ) of Trumbull's total value is 0.60, and the risk-free rate is 5%. Assume that N(d1) = 0.9720 and N(d2) = 0.9050.
-What is the value (in millions) of Trumbull's equity if it is viewed as an option?

• A) $228.77
• B) $254.19
• C) $282.43
• D) $313.81
• E) $345.19

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Definitions:

Current Asset

Assets that are expected to be converted into cash, sold, or consumed within one year or within the company’s normal operating cycle if longer.

Plant and Equipment

Plant and Equipment are long-term assets used in the operation of a business, not intended for resale, including machinery, buildings, and vehicles.

Long-Term Liabilities

Obligations that are not due or payable for a long time, usually for more than a year.

Net Sales

The total revenue from sales reduced by returns, allowances, and discounts.