Question
As of July 2009, Google (ticker: GOOG) had no debt. Suppose the firm were to issue $96 billion in zero-coupon senior debt, and another $32
As of July 2009, Google (ticker: GOOG) had no debt. Suppose the firm were to issue $96 billion in zero-coupon senior debt, and another $32 billion in zero-coupon junior debt, both due in January 2011. Suppose Google had 320 million shares outstanding, trading at $422.27 per share, implying a market value of $135.1 billion. The risk-free rate over this horizon is 1.0 %. Use the option data in the table, to determine the rate Google would pay on the junior debt issue. (Assume perfect capital markets.)
The rate Google would pay on the junior debt issue is ____________%. (Round to one decimal place.)
| OOG | 422.27 |
| +7.87 |
|
| ||||||
| Jul 13 2009 @ 13:10 EST | Vol 2177516 |
| ||||||
| Calls | Bid | Ask | Open Int |
| ||||
|
| ||||||||
| 11 Jan 150.0 (OZF AJ) | 273.60 | 276.90 | 100 | |||||
| 11 Jan 160.0 (OZF AL) | 264.50 | 267.520 | 82 | |||||
| 11 Jan 200.0 (OZF AA) | 228.90 | 231.20 | 172 | |||||
| 11 Jan 250.00 (OZF AU) | 186.50 | 188.80 | 103 | |||||
| 11 Jan 280.0 (OZF AX) | 162.80 | 165.00 | 98 | |||||
| 11 Jan 300.0 (OZF AT) | 148.20 | 150.10 | 408 | |||||
| 11 Jan 320.0 (OZF AD) | 133.90 | 135.90 | 63 | |||||
| 11 Jan 340.0 (OZF AI) | 120.50 | 122.60 | 99 | |||||
| 11 Jan 350.0 (OZF AK) | 114.10 | 116.10 | 269 | |||||
| 11 Jan 360.0 (OZF AM) | 107.90 | 110.00 | 66 | |||||
| 11 Jan 380.0 (OZF AZ) | 95.80 | 98.00 | 88 | |||||
| 11 Jan 400.0 (OZF AU) | 85.10 | 87.00 | 2577 | |||||
| 11 Jan 420.0 (OZF AG) | 74.60 | 76.90 | 66 | |||||
| 11 Jan 450.0 (OZF AV) | 61.80 | 63.30 | 379 | |||||
Step by Step Solution
There are 3 Steps involved in it
Step: 1
To determine the rate Google would pay on the junior debt issue we can use the Merton Model which treats debt as a combination of optionlike securitie...
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Advanced Accounting
Authors: Joe Hoyle, Thomas Schaefer, Timothy Doupnik
10th edition
0-07-794127-6, 978-0-07-79412, 978-0077431808
