The Current Market Value of the Assets of Smethwell,Inc

question 19

Multiple Choice

The current market value of the assets of Smethwell,Inc.is $54 million,with a standard deviation of 16 percent per year.The firm has zero-coupon bonds outstanding with a total face value of $40 million.These bonds mature in 2 years.The risk-free rate is 4 percent per year compounded continuously.What is the value of d1?

• A)1.32
• B)1.48
• C)1.67
• D)1.79
• E)2.06

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Definitions:

Total Liabilities

The total amount of all financial obligations a company owes to external parties.

Owner's Equity

The residual interest in the assets of an entity after deducting liabilities, representing the owner’s claim on the business assets.

Period's Change

The difference in a specific financial indicator or performance measure from one established period to the next.

Liabilities

Obligations owed by a company to third parties, such as loans, accounts payable, or mortgages, expected to be paid or settled.