PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 23, Problem 8PS
Default option Digital Organics has 10 million outstanding shares trading at $25 per share. It also has a large amount of debt outstanding, all coming due in one year. The debt pays interest at 8%. It has a face value of $350 million but is trading at a market value of only $280 million. The one-year risk-free interest rate is 6%.
- a. Write out the put–call parity formula for Digital Organics’s stock, debt, and assets.
- b. What is the value of the company’s option to default on its debt?
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-Select- v
YTC:
What return should investors expect to earn on these bonds?
I. Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM.
II. Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC.
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IV. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM.
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A firm's bonds have a maturity of 10 years with a $1,000 face value, have an 8% semiannual coupon, are callable in 5 years at $1,054.36, and currently sell at a price of $1,104.71. What are their nominal yield to maturity and their nominal yield to call? Do not round intermediate calculations. Round your answers to two decimal places.
YTM: %
YTC: %
What return should investors expect to earn on these bonds?
Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM.
Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM.
Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC.
Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC.
A firm's bonds have a maturity of 14 years with a $1,000 face value, have an 8% semiannual coupon, are callable in 7 years at $1,063.91, and currently sell at a price of $1,119.63. What are their nominal yield to maturity and their nominal yield to call? Do not round intermediate calculations. Round your answers to two decimal places. YTM: YTC: % -Select- v % What return should investors expect to earn on these bonds? I. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC. II. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM. III. Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM. IV. Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC.
Chapter 23 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 23 - Expected yield You own a 5% bond maturing in two...Ch. 23 - Bond ratings In February 2018, Aaa bonds yielded...Ch. 23 - Bond ratings It is 2030 and the yields on...Ch. 23 - Prob. 4PSCh. 23 - Default option Other things equal, would you...Ch. 23 - Prob. 6PSCh. 23 - Prob. 7PSCh. 23 - Default option Digital Organics has 10 million...Ch. 23 - Prob. 9PSCh. 23 - Prob. 10PS
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