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 correct answer is A because d1 = (ln(S/K) + (r + (σ^2)/2) * t) / (σ * √t) = (ln(86/45) + (0.04 + (0.15^2)/2) * 2) / (0.15 * √2) = 3.54.

The Current Market Value of the Assets of Bigelow