Calculation of debt and equity of a firm with market value

Reference no: EM13827117

Problem:

A firm's assets have a market value of $500m; the asset returns have a standard deviation of 25% per year. The firm is financed with zero coupon debt having a face value of $400m and maturing in 5 years. The (continuously compounded) risk free rate is 5%. What is the value of the debt and the equity?

Summary of question:

This question basically belongs to Finance as well as it explains about calculation of debt and equity of a firm with market value of its assets given and the firm being financed by zero coupon debt.

Reference no: EM13827117

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