Square File’s assets are worth $220. It has $140 of zero-coupon debt outstanding that is due to be repaid at the end of two years. The risk-free interest rate is 5%, and the standard deviation of the returns on Square File’s assets is 40% per year. Calculate the present value of the company’s debt and equity. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Square File’s assets are worth $220. It has $140 of zero-coupon debt outstanding that is due to be repaid at the end of two years. The risk-free interest rate is 5%, and the standard deviation of the returns on Square File’s assets is 40% per year. Calculate the present value of the company’s debt and equity. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 15P

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