Coinbass Ltd has assets worth $38B. The company also has a single zero-coupon bond with a notional value of $33B and a maturity of 4 years. The volatility of Coinbass's assets is 20% p.a. The risk-free rate is 3% p.a., continuously- compounded. Coinbass does not pay dividends. What is the value of d2 in the Merton model valuing Coinbass's debt, rounded to two decimal places? Group of answer choices A. None of the other answers is correct. В. 1.00 C. 0.60 D. 0.73 E. 0.40

Coinbass Ltd has assets worth $38B. The company also has a single zero-coupon bond with a notional value of $33B and a maturity of 4 years. The volatility of Coinbass's assets is 20% p.a. The risk-free rate is 3% p.a., continuously- compounded. Coinbass does not pay dividends. What is the value of d2 in the Merton model valuing Coinbass's debt, rounded to two decimal places? Group of answer choices A. None of the other answers is correct. В. 1.00 C. 0.60 D. 0.73 E. 0.40

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Hema Corp. is an all-equity firm with a current market value of $1,230 million (i.e., $1.23 billion), and will be worth $1,107 million or $1,722 million in one year. The risk-free interest rate is 5%. Suppose Hema Corp. issues zero-coupon, one-year debt with a face value of $1,292 million, and uses the proceeds to pay a special dividend to shareholders. Suppose that in the event Hema Corp. defaults, $90 million of its value will be lost to bankruptcy costs. Assume there are no other market imperfections. a. What is the present value of these bankruptcy costs, and what is their delta with respect to the firm's assets? b. In this case, what is the value and yield of Hema's debt? c. In this case, what is the value of Hema's equity before the dividend is paid? What is the value of equity just after the dividend is paid?
he total book value of WTC’s equity is $7 million, and book value per share is $14. The stock has a market-to-book ratio of 1.5, and the cost of equity is 12%. The firm’s bonds have a face value of $4 million and sell at a price of 110% of face value. The yield to maturity on the bonds is 9%, and the firm’s tax rate is 21%. What is the company’s WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) WACC= ______%
The total book value of WTC’s equity is $14 million, and book value per share is $28. The stock has a market-to-book ratio of 1.5, and the cost of equity is 9%. The firm’s bonds have a face value of $10 million and sell at a price of 110% of face value. The yield to maturity on the bonds is 5%, and the firm’s tax rate is 21%. What is the company’s WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
TT Industries is trading for $20 per share and has 25 million shares outstanding. TT Industries has a debt-equity ratio of 0.4 and its debt is zero coupon debt with a ten-year maturity and a yield to maturity of 8%. Which of the following best describes TT's debt using a put option? A) Short $200 million in risk-free debt and Long a put option on the firm's assets with a $200 strike price B) Long $200 million in risk-free debt and Short a put option on the firm's assets with a $700 strike price C) Long $200 million in risk-free debt and Short a put option on the firm's assets with a $200 strike price D) Short $200 million in risk-free debt and Long a put option on the firm's assets with a $700 strike price
The total book value of WTC's equity is $13 million, and book value per share is $20. The stock has a market-to-book ratio of 1.5, and the cost of equity is 9%. The firms bonds have a face value of $9 million and sell at a price of 110% of face value. The yield to maturity on the bonds is 7% andthe firm's tax rate is 21%. What is the company's WACC? (Don't round intermediate calculations, enter final answers as a percent rounded to 2 decimal places.)
The total value (debt plus equity) of Wilson Dover Inc. is $500 million and the face value of its 1-year coupon debt is $200 million. The volatility (σ) of Wilson Dover's total value is 0.60, and the risk-free rate is 5%. Assume that N(d1) = 0.9720 and N(d2) = 0.9050.Refer to the data for Wilson Dover Inc. What is the yield on Wilson Dover's debt? a. 7.05% b. 6.70% c. 6.04% d. 7.42% e. 6.36%
The total value (debt plus equity) of Wilson Dover Inc. is $500 million and the face value of its 1 - year coupon debt is $200 million. The volatility (\ sigma) of Wilson Dover's total value is 0.60, and the risk free rate is 5%. Assume that N(d1) = 0.9720 and N(d2) = 0.9050. Refer to the data for Wilson Dover Inc. What is the value (in millions) of Wilson Dover's debt if its equity is viewed as an option? a. $247.82 b. $186.19 c. $167.57 d. $204.81 e $225.29
Rauch Inc.’s current stock price is $2 per share and it has 300 million shares outstanding. The book value of its equity is $200 million and the book value of its debt is $400 million. Assume that the beta of the firm’s debt is 0.5 and the beta of the firm’s equity is 1.5. The risk-free rate is 3% and the expected return on the market is 9%. Assume that there are no taxes or other market imperfections. What is Rauch’s asset beta? What is Rauch’s asset cost of capital? Assume that Rauch Inc. issues an additional $100 million in debt and uses the proceeds to buy back its equity. What is Rauch’s asset beta after recapitalization? What is Rauch’s asset cost of capital after recapitalization? After the recapitalization described in part (b), Rauch’s debt beta is now 0.6. What is Rauch’s equity beta after recapitalization? What is Rauch’s cost of equity after recapitalization? From the standpoint of Rauch Inc. (i.e., the firm as a whole), what is the net present value(NPV) of the…
Vestal Corp. has a beta of 1.3, the market risk premium is 7% and the risk-free rate of interest is 4%. Vestal's preferred stock pays a dividend of $4 each year and trades at a price of $40 per share. Vestal's debt trades with a yield to maturity of 8.5%. The market value of equity, preferred stock and debt for Vestal Corp. are $80 billion, $40 billion and $120 billion, respectively. What is Vestal's weighted average cost of capital if its tax rate is 30%?
ABC Inc. recently is doing the following financing: (1) The firm's non-callable bonds mature in 20 years, have an 8.00% Yield to Maturity. (2) The company’s tax rate is 40%. (3) The risk-free rate is 3%, the market return is 12%, and the stock’s beta is 1.20. (4) The target capital structure consists of half debt and half equity. The firm uses the CAPM to estimate the cost of common stock, and it does not expect to issue any new shares. What is its WACC?
Alset Co. pays 40% in corporate taxes and is financed by the common stock with N = 10, 000 shares outstanding trading at $22.50 per share and by $375K of the risky perpetual debt. Alset has only assets-in-place generating $15 of EBIT per share in perpetuity and does not grow. Let EPS stand for earnings per share, E for equity, and D for debt. (i) Market Sharpe Ratio is equal to 0.4. If the efficient portfolio with βp = 0.8 and volatility, σp, equal to 0.2, has a return of 13%, calculate the risk free rate, rf , and market risk premium, rM − rf .
Frostbite thermalwear has a zero coupon bond issue outstanding with a face value of 18,000 that matures in one year. The curent market value of the firm assets is 22,000. The standard deviation of the return on the firm assets is 51 percent per year, and the annual risk free rate is 7 percent per year, compounded continuously. what is the Market value of the firm's equity? What is the Market value of the firm's debt?

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