Q17 30 Work the example from Page 470 (sun $100 with 3 4 probability, rain $60 with 1 4 probability), if the debt promises 65 and offers an expected rate of 3 What is the weight of equity in the capital structure Financing Scheme AE Financing Scheme DE 1 100 Equity Bond ( promisse $76) Levered Equity (After $76 Bond) Prob ( Sun ) 3 4 $100 100 76 24 Prob ( Rain ) 1 4 $60 60 60 0 Future Payoff 90 72 18 Price P Now 75 65 10 Rate of Return 20 10 77 80 Financing Weight 100 65 75 87 10 75 13

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Question: Q17.30 Work the example from Page 470 (sun [$100] with 3/4 probability, rain [$60] with 1/4 probability), if the debt promises 65 and offers an

Q17.30 Work the example from Page 470 (sun [$100] with 3/4 probability, rain [$60] with 1/4 probability), if the debt promises 65 and offers an expected rate of 3%. What is the weight of equity in the capital structure?

	Financing Scheme AE		Financing Scheme DE-1
	100% Equity	Bond ( promisse $76)	Levered Equity (After $76 Bond)
Prob ( Sun )=3/4 $100	100	76	24
Prob ( Rain )=1/4 $60	60	60	0
Future Payoff	90	72	18
Price P Now	75	65	10
Rate of Return	20%	10.77%	80
Financing Weight	100%	65/75 ~87%	10/75 ~13%

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