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Unformatted text preview: 1 • Please solve the following questions 1. Suppose that corporate A asset value is 128,000 today, corporate A has 1000 nondividendpaying equity outstanding and warrants on 100 shares expire in 5 years with a strike price of 100, the annual riskfree rate is r=5%, and σ A =0.3. What is the equity price today? And what is the value of warrant today? 2. Suppose that corporate A asset value is 128,000 today, corporate A has 100 units 6month zerocoupon debt with each unit having face value $1000, and 1000 nondividendpaying equity outstanding, the annual riskfree rate is r=5%, and σ A =0.3. What is the equity price today? And what is the value of bond today? 3. Suppose that corporate A asset value is 128,000 today, corporate A has 100 units 6month zerocoupon debt with each unit having face value $1000, each of which is convertible into 33 and 1/3 shares of equity at the end of 6 month, and 1000 nondividendpaying equity outstanding, the annual riskfree rate is r=5%, and σ A =0.3. What is the equity price today? And what is the convertible bond’s price today? 2 • Suggested solutions 1....
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 Spring '10
 wuyiling
 Corporate Finance, annual riskfree rate

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