1. Better Buy has a $1,500 pure discount bond that comes due in one year. The risk-free rate of return is 4 percent. The firm's assets are expected to be worth either $1,200 or $1,900 in one year. Currently, these assets are worth $1,300. What is the current value of the firm's debt?
2. Lawrence's stock is currently selling for $28.00 a share but is expected to decrease to either $27 or $33 a share over the next year. The risk-free rate is 4 percent. What is the current value of a 1-year call option with an exercise price of $30?