A firm has a single zero-coupon bond issue outstanding with a face value of $10 million. It matures in seven years. The current market value of the firm’s assets is $13 million. The volatility of the return on the firm’s assets is 50% per year. The risk-free rate is 6%, continuously compounded.
-What is the continuously compounded cost of debt (choose the closest one)?
A. 4.46
B. 8.54
C. 11.54%
D. 15.93%