Firm is equivalent to owning a call option on firms assets

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Reference no: EM13942003

Explain the rationale behind the idea that equity is a call option on a firm's assets. In other words, explain why equity ownership of a firm is equivalent to owning a call option on the firm’s assets. Next, explain what it would mean for shareholders to allow this call option to expire, and under what circumstances shareholders would do so.

Reference no: EM13942003

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Firm is equivalent to owning a call option on firms assets : Explain the rationale behind the idea that equity is a call option on a firm's assets. In other words, explain why equity ownership of a firm is equivalent to owning a call option on the firm’s assets. Next, explain what it would mean for shareholder..

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