What should be the price of xyz bonds today

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Problem 1: XYZ Inc. is facing financial difficulties and is expected to file for bankruptcy protection today. You hold a $1,000 face value bond of the company paying annual coupons and maturing in 12 years. The firm will stop paying interest to bondholders after the bankruptcy filing. The bankruptcy process will be resolved two years from now and bondholders will receive $0.605 for every $1.00 of face value and one share of the reorganized company with an expected price of $15 in 2 years when the bankruptcy is resolved. The firm also promises to pay the bondholders another $200 per bond in 3 years if they agree to the plan now. Bonds with similar risk are selling at YTM of 21.5%. What should be the price of XYZ's bonds today?

Reference no: EM132869343

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