The current market value of the assets of Bigelow.is €86 million, with a standard deviation of 15% per year.The ﬁrm has zero-coupon bonds outstanding with a total face value of €45 million.These
Bonds mature in 2 years.The risk-free rate is 4% per year compounded continuously.What is the
Value of d1?

Question

Quizplus · Accepted Answer

The value of d1 is calculated using the Black-Scholes formula for options pricing. Here, d1 = [ln(V/F) + (r + (σ^2)/2)T] / (σ√T), where V is the current asset value (€86 million), F is the face value of the debt (€45 million), r is the risk-free rate (4%), σ is the standard deviation (15%), and T is the time to maturity (2 years). Plugging in these values gives d1 ≈ 3.54.

The Current Market Value of the Assets of Bigelow