Use the following information to answer the question(s)below.
Galt Industries is trading for $20 per share and has 25 million shares outstanding.Galt Industries has a debt-equity ratio of 0.4 and its debt is zero coupon debt with a ten-year maturity and a yield to maturity of 8%.
-In describing Galt's equity as a call option,the maturity of this option is:
A)5 years.
B)10 years.
C)20 years.
D)infinite.

Question

Quizplus · Accepted Answer

The maturity of Galt's equity can be thought of as a call option with a maturity equal to the maturity of the company's zero coupon debt, which is 10 years in this case. Therefore, the best choice is B.

Use the Following Information to Answer the Question(s)below