- Value of the firm V = 100
- Face value of debt X is 120 and still one year to go until maturity
- Firm value volatility is 40.5% per annum
- Risk free rate is 6%
Consider a one-period model. If any information is not available make assumptions.
Is the equity value of the firm "in the money" or "out of the money"?
Edit: I know how to compute firm value V, return on assets rA, and value of D and E. Just don't get this question.