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Can you show how to do this in excel? A firm will earn $80 in one year if it does well. The debtholders are promised
Can you show how to do this in excel?
A firm will earn $80 in one year if it does well. The debtholders are promised payments of $60 in one year. If the firm does poorly, however, its earnings in one year will be $55. In this case, the repayment to debtholders will be $50 because of the direct cost of bankruptcy. The probability of the firm performing poorly or well in one year is 50%. If bondholders are fully aware of all this future information, what will they pay for the debt (i.e., what is the current value of debt)? The interest rate on the bonds is 4%. HINT: You don't need to use all the numbers that are given in this problem! First, how much money do bondholders expect to receive next year? | | | $55.00 $52.50 $42.50 $35.00 $24.00 Finally, what is the current value of debt? 1 UAWN $22.43 $33.02 $40.48 $50.97 $52.88Step by Step Solution
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