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?
A).307
B) .324
C) .365
D) .396

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