The current market value of the assets of Bigelow Inc.is $91 million,with a standard deviation of 19 percent 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 percent per year compounded continuously.What is the value of d₁?

Question

Quizplus · Accepted Answer

The correct answer is A because d1 = (ln(V/B) + (r + (sd^2)/2) * t) / (sd * sqrt(t)) = (ln(91/45) + (0.04 + (0.19^2)/2) * 2) / (0.19 * sqrt(2)) = 3.05.

The Current Market Value of the Assets of Bigelow Inc