As of June 2016, Facebook (FB) had no debt. Suppose the firm's managers consider issuing zero-coupon debt
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Question:
As of June 2016, Facebook (FB) had no debt. Suppose the firm's managers consider issuing zero-coupon debt with a face value of $231 billion due in January of 2018 (19 months) and using the proceeds to pay a special dividend. FB has 2.31 billion shares outstanding, with a market price (June 2016) of $116.62. The risk-free rate over this horizon is 0.25%.
There is a call option trading on FB with a strike price of $100 and a price of $29.24. What is the implied credit spread of Facebook's proposed debt issue assuming perfect capital markets?
A. | 8.89% | |
B. | 8.64% | |
C. | 19.74% | |
D. | Cannot be determined from the information given. |
Related Book For
Money Banking and Financial Markets
ISBN: 978-0078021749
4th edition
Authors: Stephen Cecchetti, Kermit Schoenholtz
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