IAMGOLD is a gold mining firm whose asset and equity value are determined by the price of gold. You are provided with the following information:

• The price of gold today is $1,200 / oz. In one year this is expected to either go up to $1,400 or down to $1,000.
• The effective annual risk free rate is 4%
• If the price of gold is $1,400 / oz., the value of all assets of IAMGOLD will be $6 billion. If the price of gold is $1,000, the value of total assets will be $4 billion.
• The firm has $4.5 billion (par value) of zero coupon debt outstanding with a maturity of one year.

Find:

• The value of assets
• The value of equity
• The value of debt
• The YTM on the debt

Answer rating: 100% (QA)

Calculation of value of assets Value of assets price of g... View the full answer