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Correct answer is Affice ffice" />
A is correct. To get this answer use the first and last row of the table to make the calculation of the Black-Scholes formula go faster. Plug in the values given into the B-S formula and use the first row to get the value of the equity if the leverage were just 100 (the face value of the senior bond). Subtract this off 400 to get the value of the senior bond. Plug in the values of the B-S formula assuming a strike of 300 (the total debt) to get the value of the equity. Use the last row of the table to make this go faster. Subtracting the value of the equity and the senior debt from 400 gives us the answer, a.
B is incorrect because it is the value of the total debt of the firm, not the value of the junior debt alone.
C is incorrect because it is the value of the senior debt, not the junior debt.
D is incorrect because it uses the wrong line in the table to calculate the junior debt. It uses the second line instead of the first. One needs to use the B-S to calculate d1 and d2 and find their normal distribution values in the table. All of the rows except the second line from the bottom have the correct values of d1 and d2 but they do not always have the correct normal distribution value that goes with d1 and d2. In particular, the middle line is incorrect because a negative value for d2 has a normal distribution value that is less than .5 The second line is easily detected as wrong because the normal area for a large number should be larger than that of a small number ? here they are reversed.
Reference: Stulz, Risk Management and Derivatives, Chapter 18 | 
发表于 2009-6-13 11:04
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