[Solved] Question 3 Options and Corporate Finance

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Question 3 Options and Corporate Finance Suppose Google currently had 320 million shares outstanding, implying a market value of $135.1 billion. Suppose that in July

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Question 3 Options and Corporate Finance Suppose Google currently had 320 million shares outstanding, implying a market value of $135.1 billion. Suppose that in July 2009, Google were to issue $96 billion in zero-coupon senior debt, and another $32 billion in zero-coupon junior debt, both due in January 2011 Use the option data above to determine the rate Google would pay on the junior debt issue Hint: Assume perfect capital markets. That is debt issuance does not affect the total value of the firm. Use the mid-point of bid and ask as the call value GOOG 422.27 +7.87 Vol 2177516 Jul 13 200913:10 ET Open Int Calls Bid Ask 10% 11 Jan 150.0 (OZF AJ 11 Jan 160.0 (OZF AL 11 Jan 200.0 (OZF AA 11 Jan 250.0 (OZF AU) 11 Jan 280.0 (OZF AX) 11 Jan 300.0 (OZF AT 1 Jan 320.0 (OZF AD 1 Jan 340.0 (OZF A 11 Jan 350.0 (OZF AK) 1 Jan 360.0 (OZF AM 1 Jan 380.0 (OZF A2 11 Jan 400.0 (OZF AU 11 Jan 420.0 (OUP AG 11 Jan 450.0 (OUP AV 273.60 276.90 100 264.50 267.20 82 228.90 231.20 172 186.50 188.80 103 162.80 165.00 148.20 150.10 408 133.90 135.90 20.50 122.60 114.10 116.10 269 10790 110.00 95.80 98.00 85.10 87002577 8% 981 6% 4% 2% 0% 74.60 76.066 61.80 63.30 379 0 50 60 70 80 90 100 Amount Borrowed ($ Billion) Question 3 Options and Corporate Finance Suppose Google currently had 320 million shares outstanding, implying a market value of $135.1 billion. Suppose that in July 2009, Google were to issue $96 billion in zero-coupon senior debt, and another $32 billion in zero-coupon junior debt, both due in January 2011 Use the option data above to determine the rate Google would pay on the junior debt issue Hint: Assume perfect capital markets. That is debt issuance does not affect the total value of the firm. Use the mid-point of bid and ask as the call value GOOG 422.27 +7.87 Vol 2177516 Jul 13 200913:10 ET Open Int Calls Bid Ask 10% 11 Jan 150.0 (OZF AJ 11 Jan 160.0 (OZF AL 11 Jan 200.0 (OZF AA 11 Jan 250.0 (OZF AU) 11 Jan 280.0 (OZF AX) 11 Jan 300.0 (OZF AT 1 Jan 320.0 (OZF AD 1 Jan 340.0 (OZF A 11 Jan 350.0 (OZF AK) 1 Jan 360.0 (OZF AM 1 Jan 380.0 (OZF A2 11 Jan 400.0 (OZF AU 11 Jan 420.0 (OUP AG 11 Jan 450.0 (OUP AV 273.60 276.90 100 264.50 267.20 82 228.90 231.20 172 186.50 188.80 103 162.80 165.00 148.20 150.10 408 133.90 135.90 20.50 122.60 114.10 116.10 269 10790 110.00 95.80 98.00 85.10 87002577 8% 981 6% 4% 2% 0% 74.60 76.066 61.80 63.30 379 0 50 60 70 80 90 100 Amount Borrowed ($ Billion)