As of June of 2016,Facebook (FB)had no debt.Suppose the firm's managers consider issuing zero-coupon debt with a face value of $231 billion due in January of 2019 (19 months)and using the proceeds to pay a special dividend.FB has 2.31 billion shares outstanding,with a market price (June,2016)of $116.62.The risk-free rate over this horizon is 0.25%.
There is a call option trading on FB with a strike price of $100 and a price of $29.24.What is the implied credit spread of Facebook's proposed debt issue assuming perfect capital markets?

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B)The face value of the debt is equivalent to a claim of $231/2.31 = $100 per share.The option price implies that the equity is worth $29.24 × 2.31 = $67.54 billion,which would make the debt worth $116.62 × 2.31 - $67.54 = $201.85 (billion).So the yield is (231/201.85)^(12/19)- 1 = 8.89%.Subtracting the risk-free rate,the credit spread is 8.89% - 0.25% = 8.64%.

As of June of 2016,Facebook (FB)had No Debt