You announce that you will issue $100M worth of one-year bonds tomorrow and would like to determine the proper yield (i.e. the promised cash flow) to offer on these bonds. Because your asset cash flows are independent of market conditions, investors expect a return of 4 percent (the risk-free rate) on this debt investment.

a) There is a 5 percent chance you will only be able to pay bondholders $30M next year (state B). There is a 95 percent chance you will be able to fully repay your bondholders the promised cash flow (state G). For now, assume no bankruptcy costs. What promised cash flow must you provide to bondholders in state G so that they receive a 5 percent expected return? What is the promised yield for this debt issuance?

b) The market learns there will be a $12M bankruptcy cost in the default state. What promised cash flow must you provide to bondholders in state G so that they receive a 5 percent expected return?

c) Before the announcement of the debt issuance, the shares in your firm were priced at $50 per share. The announcement of the debt issuance negatively affects the share price because of the expected bankruptcy cost mentioned in part (b). What is the new share price following the announcement of the debt issuance? Assume that there are 3M shares outstanding.

step by step work without excel please

Question 1 You announce that you will issue $100M worth of one-year bonds tomorrow and would like to determine the proper yield (i.e. the promised cash flow) to offer on these bonds. Because your asset cash flows are independent of market conditions, investors expect a return of 4 percent (the risk-free rate) on this debt investment. There is a 5 percent chance you will only be able to pay bondholders $30M next year (state B). There is a 95 percent chance you will be able to fully repay your bondholders the promised cash flow (state G). For now, assume no bankruptcy costs. What promised cash flow must you provide to bondholders in state G so that they receive a 5 percent expected return? What is the promised yield for this debt issuance? a) b) The market learns there will be a $12M bankruptcy cost in the default state. What promised cash flow must you provide to bondholders in state G so that they receive a 5 percent expected return? Before the announcement of the debt issuance, the shares in your firm were priced at $50 per share. The announcement of the debt issuance negatively affects the share price because of the expected bankruptcy cost mentioned in part (b). What is the new share price following the announcement of the debt issuance? Assume that there are 3M shares outstanding. c)