A share of stock is a ________ option on the value of assets of the firm with a strike price equal to ________.
A)put option,face value of debt
B)call option,market value of equity
C)call option,face value of debt
D)put option market value of equity

Question

Quizplus · Accepted Answer

A share of stock can be viewed as a call option on the firm's assets with a strike price equal to the face value of the firm's debt. If the firm's assets exceed the debt, equity holders benefit, similar to exercising a call option.

A Share of Stock Is a ________ Option on the Value