Multiple Choice
A firm has assets of $16.4 million and 2-year, zero-coupon, risky bonds with a total face value of $7.4 million. The bonds have a total current market value of $7.1 million. The shareholders of this firm can change these risky bonds into risk-free bonds by purchasing a ________ option with a 2-year life and a strike price of ________ million.
A) call; $7.1
B) call; $7.4
C) put; $16.4
D) put; $7.1
E) put; $7.4
Correct Answer:
Verified
Correct Answer:
Verified
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