In: Finance
Sunburn Sunscreen has a zero coupon bond issue outstanding with a $21,000 face value that matures in one year. The current market value of the firm’s assets is $22,800. The standard deviation of the return on the firm’s assets is 26 percent per year, and the annual risk-free rate is 5 percent per year, compounded continuously.
Based on the Black–Scholes model, what is the market value of the firm’s equity and debt?