a firm has risky debt, its debt can be viewed as an option on the total value of the firm with an exercise price equal to the face value of the equity.

Name: a firm has risky debt, its debt can be viewed as an option on the total value of the firm with an exercise price equal to the face value of the equity.
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Question

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The firm's risky debt can be viewed as an option on the firm's assets, with the exercise price equal to the face value of the debt, not the equity.

A Firm Has Risky Debt, Its Debt Can Be Viewed