What should be the value of the equity of the firm

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Reference no: EM132058780

You know that the assets of a firm PRIME are today worth 200mil. There is only one share of equity outstanding. You reasonably feel that in a year they will be either worth 240mil or 160mil. 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 200mil. The bond is convertible into 11 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? Can you do a further analysis of this problem?

Reference no: EM132058780

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