Gingle co issued 2 different zero-coupon bonds bond a is a, Ask an Expert

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Gingle Co. issued 2 different zero-coupon bonds. Bond A is a junior bond with face value $87 million while Bond B is a senior bond with face value $200 million. The maturity of the debt is 1 year from now. In one year the company can be in a good state and have an asset value of $500 million, or the company can be in a bad state and have assets worth only $200 million. The two states can occur with equal probability. In case of bankruptcy, the bankruptcy costs are $30 million. The market risk premium is 5.00% and the risk-free rate is 3.00% and both bonds bear no systematic risk.

What is the market value of debt?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91602702

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