Question

Delta Importers has a pure discount loan with a face value of $180,000 due in one year. The assets of the firm are currently worth $265,000. The shareholders in this firm basically own a _____ option on the assets of the firm with a strike price of _____. Group of answer choices Put; $180,000 Put; $265,000 Warrant; $265,000 Call; $180,000 Call; $265,000

Answer 1

Answer: Call; $180,000

Step-by-step explanation:

A Call option gives the holder the right to buy an asset if they want to at a certain set price.

In this scenario the shareholders of this firm can buy the assets of this company in order to pay off the debt of $180,000 which in essence makes $180,000 the strike price thereby making this a call option.