The Bakery's assets are currently valued at $2,306.These assets are expected to be worth either $2,100 or $2,600 one year from now.The company has a pure discount bond outstanding with a $2,500 face value and a maturity date of 1 year.The risk-free rate is 2.6 percent.What is the value of the equity in this firm?

Question

Quizplus · Accepted Answer

Number of options needed = ($2,600 - $2,100)/ ($100 - $0)= 5 $2,306 = 5C₀ + $2,100 / 1.026 C₀ = $51.84

The Bakery's Assets Are Currently Valued at $2,306