Question
Application to Corporate Finance A companys current value of assets is $120 millions and the volatility of the asset value is 10% per annum. The
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Application to Corporate Finance
A companys current value of assets is $120 millions and the volatility of the asset value is 10% per annum. The company has issued a debt whose face value is $100 millions and it needs to repay the debt in two years. The risk-free interest rate is 5% per annum. Use a two step binomial tree of the asset value in the following questions.
What is the current value of the debt? What is the risk-neutral probability of the companys default on the debt?
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Personal Financial Planning
Authors: Randy Billingsley, Lawrence J. Gitman, Michael D. Joehnk
15th Edition
978-0357438480, 0357438485
