A company's debt is given by a bond that will mature in two years. After

two years the company will terminate all activity. The company unlevered

equity value in two years can be $17 millions with a 50% probability, or $14

millions with probability 50%. The bond is a zero-coupon bond with face value

$16 millions. The market risk premium is 5% the risk-free rate is 3%. The

bankruptcy costs are $4 millions. The market price of the bond is 70% of the

face value. Assume perfect capital markets and no taxation.

What is the beta of the company's debt? [0.95]

The answer has to be 0.95