Question
Digital Organics has 10m outstanding shares trading at $25 per share. It also has a large amount of debt outstanding, all coming due in one
Digital Organics has 10m outstanding shares trading at $25 per share. It also has a large amount of debt outstanding, all coming due in one year. The debt pays interest at 8 percent. It has a par (face) value of $350m, but is trading at a market value of only $280m. The one-year risk-free interest rate is 6 percent.
(a) Write out the put-call parity formula for Digital Organics stock, debt, and assets.
(b) What is the value of the default put given up by Digital Organics creditors?
6. Digital Organics has 10m outstanding shares trading at $25 per share. It also has a large amount of debt outstanding, all coming due in one year. The debt pays interest at 8 percent. It has a par (face) value of $350m, but is trading at a market value of only $280m. The one-year risk-free interest rate is 6 percent. (a) Write out the put-call parity formula for Digital Organic's stock, debt, and assets. (b) What is the value of the default put given up by Digital Organics' creditorsStep by Step Solution
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International Finance Theory And Policy
Authors: Paul R. Krugman, Maurice Obstfeld, Marc Melitz
11th Global Edition
1292238739, 978-1292238739
