Question: Trying to learn how to do it in excel specifically so please show functions! 9. You are considering buying the bonds of a very risky
Trying to learn how to do it in excel specifically so please show functions!
9. You are considering buying the bonds of a very risky company. A bond with a $100 face value, a 1-year maturity, and a coupon rate of 22% is selling for $95. You consider the probability that the company will actually survive to pay off the bond 80%. With 20% probability, you think that the company will default, in which case you think that you will be able to recover $40. a. What is the expected return on the bond? b. If the company has cost of equity r-25%, tax rate Tc-35%, and 40% of its capital structure is equity, what is its weighted average cost of capital (WACC)
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
