The current market value of the assets of Bigelow,Inc. 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 correct answer is A because d1 = (ln(V/K) + (r + (sigma^2)/2) * t) / (sigma * sqrt(t)) = (ln(86/45) + (0.04 + (0.15^2)/2) * 2) / (0.15 * sqrt(2)) = 3.54.

The Current Market Value of the Assets of Bigelow,Inc