What is the market value of ABCs debt

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Reference no: EM132810705

Questions-

Q1. ABC Inc. has an issue of zero-coupon bond outstanding with a $100,000 face value that matures in one year. The market value of ABC's assets is $105,000 and the standard deviation of returns on assets is 34 percent annually. The risk-free rate is 3.5 percent per year compounded continuously. What is the market value of ABC's debt based on the Black-Scholes model?

Q2. ABC Inc.'s has issued bonds with five detachable warrants for sale for $1,000. The bonds will mature in ten years and carry an annual coupon at 8.5%. Each warrant confers on the owner the right to purchase four shares of stock in the company at $15 per share. Ordinary bonds (with no warrants) of similar quality are priced to yield 7.2 percent. What is the value of one warrant?

Reference no: EM132810705

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