a firm has a pure discount loan with face value of $75,000 that is due in six months. the assets of the firm are currently worth

Question

Klio2033 [76]

1 year ago

6

a firm has a pure discount loan with face value of $75,000 that is due in six months. the assets of the firm are currently worth

$96,000. the stockholders in this firm basically own options on the assets of the firm with a strike price of .

Business

1 answer:

ioda · Answer 1 · 2024-09-06T23:53:31+03:00

As you owns stock in a firm that has a pure discount loan due in six months. The loan has a face value of $70,000. The assets of the firm are currently worth $96,000. The stockholders in this firm basically own a <u>call option</u> on the assets of the firm with a strike price of <u>$70,000</u>.

<h3>What Is a Call Option?</h3>

Basically, a call options refers to a financial contracts that give the option buyer the right, but not an obligation to buy a stock, bond, commodity or other asset or instrument at a specified price within a specific time period.

<h3>What is a Strike price?</h3>

On an options contract, a strike price refers to the the price at which the underlying security can be either bought or sold once exercised. It is also known as the exercise price and it is a key feature of an options contract.

In conclusion, as the firm has a pure discount loan with face value of $75,000 which is due in six months whereas its assets are worth $96,000, then, we will say the firm have a call option with a strike price of $96,000.