Extra flashcards

Question 1

Arbitrage look and assumptions

Answer 1

buy equity, sell debt, total, at different times, trade at current prices and borrow at same terms rate

Question 2

If PV of tax present, you calculate market value by adding …

Answer 2

PV of tax

Question 3

How much of your equity will you need to give away in order to raise the £50,000?

Answer 3

Find PV - cash flows divided by disocunt rate then 50,000 / PV assets

Question 4

Assuming perfect capital markets, what should be the market value of the firm (equity plus debt)
after the recap

Answer 4

This is M&M prop I – changing capital structure will not change assets’ value

Question 5

Finding strike price (K)

Answer 5

Debt / shares outstanding

Question 6

Implied Credit Spread

Answer 6

Find rate of debt (Rd - Debt face value divided by 1+Rd^2 = debt mv) - bond retun

Question 7

Bond yield

Answer 7

Coupon / fave value bond (debt pv)

Question 8

Expected return on debt

Answer 8

Rd = yield –Probability of default*Expected loss

Question 9

PV Debt

Answer 9

Debt / risk free rate