Question
As of June of 2016, Facebook (FB) had no debt. Suppose the firm's managers consider issuing zero-coupon debt with a face value of $231 billion
As of June of 2016, Facebook (FB) had no debt. Suppose the firm's managers consider issuing zero-coupon debt with a face value of $231 billion due in January of 2018 (19 months) and using the proceeds to pay a special dividend. FB has 2.31 billion shares outstanding, with a market price (June, 2016) of $116.62. The risk-free rate over this horizon is 0.25%.
There is a call option trading on FB with a strike price of $100 and a price of $29.24. What is the implied credit spread of Facebook's proposed debt issue assuming perfect capital markets?
1. 8.89%
2. 8.64%
3. 19.74%
4. Cannot be determined from information given.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started