Solution assumes a call option with strike price k=10 for equity value the question states that asset value is expected to grow at 10% p.a,shouldnt this affect(increase?) asset value including strike price value at wound up date??
The question says the ZCB has "nominal value £10m". This means the bondholders are entitled to receive £10m at maturity. This is not affected by the growth of the firm's assets (although the growth will affect the company's ability to pay what's due). The shareholders have a call option on the company's assets at 10 years. They can pay the bondholders £10m and will then own all the company's assets by themselves. So it's correct to have a strike price of £10m.
