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Calculate the maximum cost at which they would increase the asset volatility is closest to

 
 
Lisanne
 
Reply Thu 12 Nov, 2020 05:37 am
Firm X has a debt payment of 10,000 scheduled for the next year. The firm will die after a year. The assets of firm X have a volatility of 20%. The risk-free rate is 5%. Shareholders can change the asset volatility to 30% for a cost. Either if they increase volatility or they do not, the value of the firm's assets is 10,000. The maximum cost at which they would increase the asset volatility is closest to:
Group of answer choices
a) 1038
b) 370
c) 1417
d) 254
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