Princeton Media has a $5,000 pure discount bond that comes due in one year. The risk-free...
Princeton Media has a $5,000 pure discount bond that comes due in one year. The risk-free rate of return is 4 percent. The firm's assets are expected to be worth either $4,600 or $6,600 in one year. Currently, these assets are worth $6,000. What is the current value of the firm's debt?
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$4,140.88 |
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$4,738.46 |
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$5,318.62 |
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$4,409.21 |
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$5,076.33 |
Homework Answers
=6000-((1.04-4600/6000)/(6600/6000-4600/6000)*MAX(6600-5000,0)+(1-(1.04-4600/6000)/(6600/6000-4600/6000))*MAX(4600-5000,0))/(1+4%)
=4738.461538
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