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

Question

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

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