Frostbite Thermal Wear Has a Zero Coupon Bond Issue Outstanding

question 37

Multiple Choice

Frostbite Thermal Wear has a zero coupon bond issue outstanding with a face value of $20,000 that matures in one year. The current market value of the firm's assets is $23,000. The standard deviation of the return on the firm's assets is 52 percent per year, and the annual risk-free rate is 6 percent per year, compounded continuously. What is the market value of the firm's equity based on the Black-Scholes model? (Round your answer to the nearest $100.)

• A)$6,400
• B)$6,700
• C)$6,900
• D)$7,000
• E)$7,200

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Definitions:

Market Supply

The total quantity of a good or service that producers are willing and able to sell at a given price in a given period.

Equilibrium Price

The market price at which the quantity supplied of a good equals the quantity demanded, leading to a stable market condition.

Quantity Supplied

The amount of a good or service that producers are willing and able to sell at a given price during a specific period.

Production Costs

Expenses incurred in the process of creating a product or service, including raw materials, labor, and overheads.