Wesley Corp. stock is trading for $27/share. Wesley has 20 million shares outstanding and a market debt-equity
Question:
Wesley Corp. stock is trading for $27/share. Wesley has 20 million shares outstanding and a market debt-equity ratio of 0.49. Wesley’s debt is zero-coupon debt with a 5-year maturity and a yield to maturity of 11%.
a. Describe Wesley’s equity as a call option. What is the maturity of the call option? What is the market value of the asset underlying this call option? What is the strike price of this call option?
b. Describe Wesley’s debt using a call option.
c. Describe Wesley’s debt using a put option.
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a We can view Wesleys equity as a call option because shareholders have the right but not the obligation to buy the companys assets at liquidation val...View the full answer
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