Question
Suppose we live in a simplistic one-period world and one-period represents one year. Hoya Inc's assets are valued at $100 currently. In one year, Hoya's
Suppose we live in a simplistic one-period world and one-period represents one year. Hoya Inc's assets are valued at $100 currently. In one year, Hoya's assets will have a market value of either $110 or $45. Hoya decides to issue a corporate bond with a principal amount of $100 and one-year maturity. The bond holder will receive the full principal amount in one year if Hoya has sufficient assets to pay the principal amount. However, if Hoya doesn't have sufficient assets to pay the principal amount in one year, the bond holder becomes the owner of the firm's assets and will sell all the assets. The risk-free interest rate is 0 with continuous compounding. How much should the bond holder pay today to buy Hoya's bond? Round your answer to 2 decimal places.
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