What is the yield-to-maturity of the debt

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Company is about to launch a new product. Depending on the success of the new product, Company may have one off our values next year: $150 million, $135 million, $95 million, or $80 million. These outcomes are all equally likely, and the risk of the project is diversifiable.

Now suppose Company has zero-coupon debt with a $100 million face value due next year.

Problem 1) What is the initial value of Company's debt?

Problem 2) What is the yield-to-maturity of the debt?

Problem 3) What is the initial value of Company's levered equity? What is Company's total value with leverage?

Reference no: EM132805562

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