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
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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
Related Book For
Intermediate Accounting Reporting and Analysis
ISBN: 978-1111822361
1st edition
Authors: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Posted Date:
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