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What is the value of the company option to default

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MRD Inc, is a levered firm. It has 10 million outstanding shares trading at $5 per share. Its debt, due in 1 year, pays interest of 10% and has a par value of $70 million. However, it is currently trading at 70% of par. If the 1-year risk-free interest rate is 8%, what is the value of the company's option to default on its debt?

Reference no: EM133004145

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