What should be its yield to maturity

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You know that the assets of a firm are today worth 100mil. There is only one share of equity outstanding. You reasonably feel that in a year they will be either worth 110mil or 90mil. You also know that a treasury bill maturing in one year is offering today a yield of 0%. The firm has a zero-coupon convertible bond that matures in one year and has a face value of 110mil. The bond is convertible into 10 shares of the common stock at maturity of the bond at the option of the bondholder.

What should be the value of this convertible corporate bond today?

What should be its yield to maturity?

What should be the value of the equity of the firm?

What further analysis of this problem can you provide?

Reference no: EM133062327

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