Question
i have asked this question 3 times already on chegg and keep getting the incorrect answer. please only answer if you know you can get
i have asked this question 3 times already on chegg and keep getting the incorrect answer. please only answer if you know you can get it right. i dont understand at all how to answer this question.
Binomial Solutions Inc (BSI) is a financial software company. Its asset has a current market value of $100 million (year 0). The asset value can either grow by 27% next year (year 1) with probability 62% (the up state), or decline by 27% (the down state) with probability 38%. BSI has a bond outstanding with a total due amount of $80 million, which is due next year. Since both BSIs stock and bond are traded in the market, we also treat its asset as traded. There are 1 million shares of stocks. The current risk-free rate is 2.02%. ______________________________________________________________________
(a) What is the total payoff of BSIs bond in the up state?
(b) What is the total payoff of BSIs bond in the down state?
(c) What is the total payoff of BSIs stock in the up state?
(d) What is the total payoff of BSIs stock in the down state?
______________________________________________________________________
(e) What is the current price of BSIs bond?
(f) What is BSIs current stock price?
(g) What is the promised yield of BSIs bond?
(h) What is the probability of default of BSIs bond? %
(i) What is the recovery rate when BSI defaults?
j) What is the expected yield on BSIs bond?
(k) What is the default premium on the bond?
(l) What is the risk premium on the bond?
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