Question

If you consider the equity of a firm to be an option on the firm’s assets then the act of paying off debt is comparable to _____ on the assets of the firm.a.purchasing a put optionb.purchasing a call optionc.exercising an in-the-money put optiond.exercising an in-the-money call optione.selling a call option

Answer 1

Answer: The correct option is "c.exercising an in-the-money put option".

Explanation: If you consider the equity of a firm to be an option on the firm’s assets then the act of paying off debt is comparable to exercising an in-the-money put option on the assets of the firm.

because he would be paying the debt with the participation in the equity of the company.