Assume perfect capital markets and no taxation

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Reference no: EM13763859

A company's debt is given by a bond that will mature in two years. After two years the company will terminate all activity. The company unlevered equity value in two years can be $17 millions with a 50% probability or $14 millions with probability 50%. The bond is a zero-coupon bond with face value $16 millions. The market risk premium is 5% the risk-free rate is 3%. The bankruptcy costs are $4 millions. The market price of the bond is 70% of the face value. Assume perfect capital markets and no taxation. What is the beta of the company's debt?

Reference no: EM13763859

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