Question: QUESTION 1 Using the graph included below please answer the following questions. Please submit your solution as a file (it can be any format, as

QUESTION 1

  1. Using the graph included below please answer the following questions. Please submit your solution as a file (it can be any format, as long as it is clear):

    QUESTION 1 Using the graph included below please answer the following questions.

    1. Draw similar graph for the value of the stake of the debtholders of company XYZ at maturity. Be specific, indicate all important points and values on the graph.
    2. (please refer to this table for questions 1-3). Suppose that assets of XYZ can take the following values at maturity of debt:
    Probability 10% 20% 40% 30%
    Value $ 3M $ 5M $ 7 M $ 20 M

    1. Calculate Expected Value of Debt of XYZ at maturity
    2. Calculate Expected Value of Equity of XYZ at the time of maturity of debt
    3. Calculate Expected Value of XYZ at the time of maturity of debt

Value of Stake of Equityholders of company Value of Firm Assets $ 5 mm

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