Use the Following Information to Answer the Question(s) Below

question 28

Multiple Choice

Use the following information to answer the question(s) below.
Galt Industries is trading for $20 per share and has 25 million shares outstanding. Galt Industries has a debt-equity ratio of 0.4 and its debt is zero coupon debt with a ten year maturity and a yield to maturity of 8%.
-In describing Galt's equity as a call option,the market value of the assets underlying the call option are:

• A) $200 million
• B) $300 million
• C) $500 million
• D) $700 million

---

Definitions:

Interest Rate

The amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets.

Loanable Funds

The money available for borrowing in the financial markets, corresponding to savings that are lent out for investment.

Liquidity Preference Theory

A theory suggesting that people prefer to hold their wealth in liquid form for ease of spending but are willing to accept less liquidity for a higher return.

Interest Rate

The percentage of a sum of money charged for its use, often expressed as an annual percentage rate.