IB 16:

Suppose your company is in such a situation, where it has two assets, which are $1 billion of cash and $4 billion of collateralized debt obligations (CDOs). In the liabilities side, it also has a $3 billion of loan which is due very soon. Assume the market value of your $4 billion of CDOs is only $1 billion currently. Please build the balance sheet for this company. What are the book value and market value of this company? Is it going to go bankruptcy and why? Please discuss what you should do in this situation, and in what situation the government is going to bail you out and why.