Task: Assume your firm has zero coupon bonds maturing in 10 years with a face value of $183.75 million.
a) If the assets are worth $150 million, what is the value of the stocks and the bonds?
b) If the assets are worth $400 million, what is the value of the stocks and the bonds?
c) If the assets are worth $400 million, the standard deviation is 0.60 and the risk-free rate is the T-bond rate, what is the value of the option to default on the bonds? What is the value of the stockholders' call option? Use Black and Scholes to get the answer to part c.