The Bakery's assets are currently valued at $2,150.These assets are expected to be worth either $1,900 or $2,100 one year from now.The company has a pure discount bond outstanding with a $2,000 face value and a maturity date of one year.The risk-free rate is 5 percent.What is the value of the equity in this firm?

Question

Quizplus · Accepted Answer

Number of options needed = ($2,100 - 1,900)/($100 - 0)= 2$2,150 = 2C₀ + $1,900/1.05C₀ = $170.24

The Bakery's Assets Are Currently Valued at $2,150