The Glass House has total assets currently valued at $17,200. These assets are expected to increase in value to either $18,000 or $21,000 by next year. The company has a pure discount bond outstanding with a face value of $20,000. This bond matures in one year. Currently, U.S. Treasury bills are yielding 5.4 percent. What is the value of the equity in this firm?

Question

Quizplus · Accepted Answer

Number of options needed = ($21,000 - $18,000)/($1,000 - $0) = 3$17,200 = 3C₀ + ($18,000/(1 + 0.054); C₀ = $40.73

The Glass House Has Total Assets Currently Valued at $17,200