Question: complete the following in python Pricing corporate debt . Consider a firm with assets currently worth $90. Assume that the volatility of asset value is
complete the following in python
- Pricing corporate debt. Consider a firm with assets currently worth $90. Assume that the volatility of asset value is 25% annually, interest rate is 6% annually, and that the firm pays no dividends. Assume that the value of the assets follows geometric Brownian motion.
At+h=Ater-22h+ h
where r is the interest rate, s is the volatility and h the time step.
- Build a binomial tree with semi-annual time-steps to approximate the value of the assets of the firm over five years.
Assume that the firm has issued three classes of debt senior, intermediate, and junior. Senior debt has priority over intermediate debt, intermediate debt has priority over junior debt, and junior debt has priority over equity. All debt matures in 5 years. The face value is $30, $30, and $40 respectively assume that there are no coupon payments. Calculate the value of each class of debt, and the value of the firms equity
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