Sunburn Sunscreen has a zero coupon bond issue outstanding with a $10,000 face value that matures in one year

Sunburn Sunscreen has a zero coupon bond issue outstanding with a $10,000 face value that matures in one year. The current market value of the firm's assets is $10,600. The standard deviation of the return on the firm's assets is 32 percent per year, and the annual risk-free rate is 7 percent per year, compounded continuously. What is the market value of the firm's debt based on the Black-Scholes model? (Round your answer to the nearest $100.)    A.  $6,415.30 B.  $6,900 C.  $8,60 D.  $8,800 E.  $9,200 d1 = [ln ($10,600/$10,000) + (0.07 + 0.322/2) × 1]/[0.32 × (11/2)] = 0.560840 d2 = 0. 560840- [0.32 × (11/2)] = 0.240840 N(d1) = 0.7125 N(d2) = 0.5952 Equity = $10,600(0.7125) - ($10,000e-0.07(1)) (0.5952) = $2,003.76 Debt = $10,600 - $2,003.76 = $8,596.24 ≈ $8,600

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Frostbite Thermal Wear has a zero coupon bond issue outstanding with a face value of $20,000 that matures in one year. The current market value of the firm's assets is $23,000. The standard deviation of the return on the firm's assets is 52 percent per year, and the annual risk-free rate is 6 percent per year, compounded continuously. What is the market value of the firm's equity based on the Black-Scholes model? (Round your answer to the nearest $100.)    A.  $6,400 B.  $6,700 C.  $6,900 D.  $7,000 E.  $7,200 d1 = [ln ($23,000/$20,000) + (0.06 + 0.522/2) × 1]/[0.52 × (11/2)] = 0.6442 d2 = 0.6442 - [0.52 × (11/2)] = 0.1242 N(d1) = 0.7403 N(d2) = 0.5494 Equity = $23,000(0.7403) - ($20,000e-0.06(1)) (0.5494) = $6,677.86 ≈ $6,700