Homework Help is Here – Start Your Trial Now!
Business
Accounting
You would like to know the beta of debt for cooper Industries. The value of coopers outstanding equity is $40 million, and you have estimated its beta to be 1.2. However, you cannot find enough market data to estimate the beta of its debt, so you decide to use the Black-Scholes formula to find an approximate value for the debt beta. cooper has four-year zero-coupon debt outstanding with a face value of $100 million that currently trades for $75 million. Cooper pays no dividends and reinvests all of its earnings. The four-year risk-free rate of interest is currently 5.13%. What is the beta of cooper's debt?

You would like to know the beta of debt for cooper Industries. The value of coopers outstanding equity is $40 million, and you have estimated its beta to be 1.2. However, you cannot find enough market data to estimate the beta of its debt, so you decide to use the Black-Scholes formula to find an approximate value for the debt beta. cooper has four-year zero-coupon debt outstanding with a face value of $100 million that currently trades for $75 million. Cooper pays no dividends and reinvests all of its earnings. The four-year risk-free rate of interest is currently 5.13%. What is the beta of cooper's debt?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
See similar textbooks
icon
Related questions
Question

R2

You would like to know the beta of debt for cooper Industries. The value of coopers outstanding equity is $40 million, and you have estimated its beta to be 1.2. However, you cannot find enough market data to estimate the beta of its debt, so you decide to use the Black-Scholes formula to find an approximate value for the debt beta. cooper has four-year zero-coupon debt outstanding with a face value of $100 million that currently trades for $75 million. Cooper pays no dividends and reinvests all of its earnings. The four-year risk-free rate of interest is currently 5.13%. What is the beta of cooper's debt?
Transcribed Image Text:You would like to know the beta of debt for cooper Industries. The value of coopers outstanding equity is $40 million, and you have estimated its beta to be 1.2. However, you cannot find enough market data to estimate the beta of its debt, so you decide to use the Black-Scholes formula to find an approximate value for the debt beta. cooper has four-year zero-coupon debt outstanding with a face value of $100 million that currently trades for $75 million. Cooper pays no dividends and reinvests all of its earnings. The four-year risk-free rate of interest is currently 5.13%. What is the beta of cooper's debt?
Expert Solution
steps

Step by step

Solved in 3 steps with 2 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS