Exhibit 17.3 The Total Value (Debt Plus Equity) of Wilson Dover Inc

question 16

Multiple Choice

Exhibit 17.3
The total value (debt plus equity) of Wilson Dover Inc. is $500 million and the face value of its 1-year coupon debt is $200 million. The volatility (σ) of Wilson Dover's total value is 0.60, and the risk-free rate is 5%. Assume that N(d₁) = 0.9720 and N(d₂) = 0.9050.
-Refer to Exhibit 17.3.What is the value (in millions) of Wilson Dover's debt if its equity is viewed as an option?

• A)$167.57
• B)$186.19
• C)$204.81
• D)$225.29
• E)$247.82

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Definitions:

Long-Term Bonds

Bonds with a longer maturity period, typically more than 10 years, offering potentially higher yields but increased interest rate risk.

Treasury Bill

A short-term government security issued at a discount from the face value and pays no interest before maturing at its face value.

Effective Annual Rate

The interest rate on a loan or investment, adjusted for the effect of compounding over a one-year period.

Par

The face value of a bond or other financial instrument, which is the amount to be paid to the holder at maturity.