The market value of Delaware East's assets is $100 mn.The firm has one issue of pure-discount debt outstanding which promises to pay $60 mn.in 5 years.If the standard deviation of the firm's assets is 22% and the risk-free rate is 5%, what are the values of the firm's equity and debt, based on the Black-Scholes model?
$\begin{array}{l}
\begin{array}{ll}
&\text { value of equity}&\text { value of debt }\
a.&\$ 54 \mathrm{mn} . & \$ 46 \mathrm{mn} . \
b.&\$ 46 \mathrm{mn} . & \$ 54 \mathrm{mn} . \
c.&\$ 38 \mathrm{mn} . & \$ 62 \mathrm{mn} . \
d.&\$ 30 \mathrm{mn} . & \$ 70 \mathrm{mn} .
\end{array}
\end{array}$

Question

The market value of Delaware East's assets is $100 mn.The firm has one issue of pure-discount debt outstanding which promises to pay $60 mn.in 5 years.If the standard deviation of the firm's assets is 22% and the risk-free rate is 5%, what are the values of the firm's equity and debt, based on the Black-Scholes model? 
$\begin{array}{l}
\begin{array}{ll}
&\text { value of equity}&\text { value of debt }\
a.&\$ 54 \mathrm{mn} . & \$ 46 \mathrm{mn} . \
b.&\$ 46 \mathrm{mn} . & \$ 54 \mathrm{mn} . \
c.&\$ 38 \mathrm{mn} . & \$ 62 \mathrm{mn} . \
d.&\$ 30 \mathrm{mn} . & \$ 70 \mathrm{mn} .
\end{array}
\end{array}$

Quizplus · Accepted Answer

The Answer of The market value of Delaware East's assets is $100 mn.The firm has one issue of pure-discount debt outstanding which promises to pay $60 mn.in 5 years.If the standard deviation of the firm's assets is 22% and the risk-free rate is 5%, what are the values of the firm's equity and debt, based on the Black-Scholes model? 
$\begin{array}{l}
\begin{array}{ll}
&\text { value of equity}&\text { value of debt }\
a.&\$ 54 \mathrm{mn} . & \$ 46 \mathrm{mn} . \
b.&\$ 46 \mathrm{mn} . & \$ 54 \mathrm{mn} . \
c.&\$ 38 \mathrm{mn} . & \$ 62 \mathrm{mn} . \
d.&\$ 30 \mathrm{mn} . & \$ 70 \mathrm{mn} .
\end{array}
\end{array}$

The Market Value of Delaware East's Assets Is $100 Mn