The value of a bond that has a probability of default is given by:
I. bond value = asset value - value of call option on assets
II. bond value = value of an equivalent default-free bond + value of put option on assets
III. bond value = value of an equivalent default-free bond + value of put option on the stock
IV. bond value = asset value + value of call option on the stock
A) I only
B) I and II only
C) III and IV only
D) IV only
Correct Answer:
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