Question 6 (4 points) In terms of relating options to the value of the firm, the

Question

Question 6 (4 points) In terms of relating options to the value of the firm, the equity of the firm can be viewed as a call option on the firm with the exercise price equal to the promised payments to the bondholders a call option on the firm with the exercise price equal to the firm's after-tax cash flow a put option on the firm with the exercise price equal to the promised payments to the bondholders a put option on the firm with an exercise price equal to the firm's after-tax cash flow None of the above.

Explanation / Answer

none of the abovee is the correct answer. equity can be viewed as a call option of the firm where the exercise price requires that the firm be liquidated & face value of the debt be corresponding to the exercise price be paid off.

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