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.