Problemsunburn sunscreen has a zero coupon bond issue, Ask an Expert

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Problem:

Sunburn Sunscreen has a zero coupon bond issue outstanding with a $25,000 face value that matures in one year. The current market value of the firm's assets is $26,100. The standard deviation of the return on the firm's assets is 41 percent per year, and the annual risk-free rate is 5 percent per year, compounded continuously.

Required:

Question: Based on the Black-Scholes model, what is the market value of the firm's equity and debt?

Note: Please provide through step by step calculations.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91167371

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