A company's debt is given by a bond that will mature in two years. After two...

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A company's debt is given by a bond that will mature in two years. After two years the company will terminate all activity. The company unlevered equity value in two years can be $17 millions with a 50% probability, or $14 millions with probability 50%. The bond is a zero-coupon bond with face value $16 millions. The market risk premium is 5% the risk-free rate is 3%. The bankruptcy costs are $4 millions. The market price of the bond is 70% of the face value. Assume perfect capital markets and no taxation. What is the beta of the company's debt? of OV Dec from ect s t So A company's debt is given by a bond that will mature in two years. After two years the company will terminate all activity. The company unlevered equity value in two years can be $17 millions with a 50% probability, or $14 millions with probability 50%. The bond is a zero-coupon bond with face value $16 millions. The market risk premium is 5% the risk-free rate is 3%. The bankruptcy costs are $4 millions. The market price of the bond is 70% of the face value. Assume perfect capital markets and no taxation. What is the beta of the company's debt? of OV Dec from ect s t So

Answer rating: 100% (QA)

To find the beta of the companys debt we need to first calculate the total value of the firm at the ... View the full answer