A Firm Has Assets of $21

question 14

Multiple Choice

A firm has assets of $21.8 million and a 3-year,zero-coupon,risky bonds with a total face value of $8.5 million.The bonds have a total current market value of $8.1 million.How can the shareholders of this firm change these risky bonds into risk-free bonds?

• A)purchase a call option with a 1-year life and a $8.1 million face value
• B)purchase a call option with a 5-year life and a $8.5 million face value
• C)purchase a put option with a 1-year life and a $21.8 million face value
• D)purchase a put option with a 3-year life and a $8.1 million face value
• E)purchase a put option with a 3-year life and an $8.5 million face value

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Definitions:

Social Learning Theory

A theory which states that people learn new behaviors and attitudes by observing the actions of others and the outcomes of those actions.

Albert Bandura

A psychologist known for his work on social learning theory and the concept of self-efficacy.

Organizational Reward Systems

The structures and processes by which organizations distribute various types of benefits and compensations to employees as recognition for their contributions.

Task Motivation

The drive or desire to undertake tasks, often influenced by interest, recognition, challenge, and the reward associated with completion.