A firm with assets value at $350,000 issues a 5 year zero-coupon bond with a par value of $400,000. Interest rates are 5% and the volatility of the companyʹs assets are determined to be
)29. If the company pays no dividend, what is the delta of the issued debt?

Question

Quizplus · Accepted Answer

The delta of the debt can be calculated using the Black-Scholes-Merton model for options. The delta of the debt is 1 minus the delta of the equity. Given the parameters, the delta of the equity is approximately 0.693, so the delta of the debt is 1 - 0.693 = 0.307.

A Firm with Assets Value at $350,000 Issues a 5