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 +787 Jul 13 200913:10 ET Vol 2177516 Ask Calls Int 10% 11 Jan 150.0 (OZF AJ) 273.60276.90 100 11 Jan 160.0 (OZF AL) 264.50 267.20 8% 11 Jan 200.0 lOZF AA) 228.90231.20 7 11 Jan 250,0 (OZF AU 186.50188.80 103 11 Jan 280.0 (OZF AX 162.80 165.00 6% 11 Jan 300.0 IOZF AT 148.20 150.10 408 11 Jan 320.0 (OZF AD 11 Jan 340.0 (OZF A 133.90 135.90 4% 120.50 : 122.60-99 | 11 Jan 350.0 (OZF AK) 114.10116.10 269 10790 110.00 11 Jan 360.0 (OZF AM 2% 11 Jan 380.0 (OZFAZ 958098.00 11 Jan 400.0 IOZF AU) 85.10 8700 2577 0% 11 Jan 420.0 (OUP AG 70 80 90 74.6076.90 66 100 11 Jan 450.0 (OUP AV) 61.80 63.30 379 Amount Borrowed (S Billion) GOOG 422.27 +787 Jul 13 200913:10 ET Vol 2177516 Ask Calls Int 10% 11 Jan 150.0 (OZF AJ) 273.60276.90 100 11 Jan 160.0 (OZF AL) 264.50 267.20 8% 11 Jan 200.0 lOZF AA) 228.90231.20 7 11 Jan 250,0 (OZF AU 186.50188.80 103 11 Jan 280.0 (OZF AX 162.80 165.00 6% 11 Jan 300.0 IOZF AT 148.20 150.10 408 11 Jan 320.0 (OZF AD 11 Jan 340.0 (OZF A 133.90 135.90 4% 120.50 : 122.60-99 | 11 Jan 350.0 (OZF AK) 114.10116.10 269 10790 110.00 11 Jan 360.0 (OZF AM 2% 11 Jan 380.0 (OZFAZ 958098.00 11 Jan 400.0 IOZF AU) 85.10 8700 2577 0% 11 Jan 420.0 (OUP AG 70 80 90 74.6076.90 66 100 11 Jan 450.0 (OUP AV) 61.80 63.30 379 Amount Borrowed (S Billion)