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  • Unhedged: Value of Debt 9,500 Value of Equity 4,500

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    Arie Adiguna
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    This document contains calculations of the expected values of bonds, stock, and the firm for three scenarios: a) the original scenario, b) a scenario where the bond value is lower, and c) a scenario where the bond and stock values are lower. For each scenario, the expected values are calculated for both an unhedged and fully hedged situation. In the unhedged situations, changes in bond and stock values affect the expected values, while in the hedged situations the expected bond value is stable at £10,000 and the expected equity value is £4,000.

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    This document contains calculations of the expected values of bonds, stock, and the firm for three scenarios: a) the original scenario, b) a scenario where the bond value is lower, and c) a scenario where the bond and stock values are lower. For each scenario, the expected values are calculated for both an unhedged and fully hedged situation. In the unhedged situations, changes in bond and stock values affect the expected values, while in the hedged situations the expected bond value is stable at £10,000 and the expected equity value is £4,000.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
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    Download as docx, pdf, or txt
    7 views3 pages

    Unhedged: Value of Debt 9,500 Value of Equity 4,500

    Uploaded by

    Arie Adiguna
    This document contains calculations of the expected values of bonds, stock, and the firm for three scenarios: a) the original scenario, b) a scenario where the bond value is lower, and c) a scenario where the bond and stock values are lower. For each scenario, the expected values are calculated for both an unhedged and fully hedged situation. In the unhedged situations, changes in bond and stock values affect the expected values, while in the hedged situations the expected bond value is stable at £10,000 and the expected equity value is £4,000.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as docx, pdf, or txt
    of 3

    P 8.

    5
    a)

    14,000

    14,000

    14,000

    9,000

    10,000

    10,000

    10,000

    9,000

    19,000

    9,000

    19,000

    Unhedged
    E [Vbonds]

    (1/2)(9,000)

    (1/2)(10,000)

    9,500

    E[Vstock]

    (1/2)(0)

    (1/2)(9,000)

    4,500

    E[Vfirm]

    (1/2)(9,000)

    (1/2)(19,000)

    14,000

    E [Vbonds]

    10,000

    E[Vstock]

    4,000

    E[Vfirm]

    14,000

    Value of Debt = 9,500


    Value of Equity = 4,500
    Hedged

    Value of Debt = 10,000


    Value of Equity = 4,000

    19,000

    b)

    14,000

    14,000

    10,000

    10,000

    9,000

    14,000

    9,000

    19,000

    10,000

    19,000

    9,000

    Unhedged
    E [Vbonds]

    (1/2)(8,000)

    (1/2)(10,000)

    9,000

    E[Vstock]

    (1/2)(0)

    (1/2)(9,000)

    4,500

    E[Vfirm]

    (1/2)(8,000)

    (1/2)(19,000)

    13,500

    E [Vbonds]

    10,000

    E[Vstock]

    4,000

    E[Vfirm]

    14,000

    Value of Debt = 9,000


    Value of Equity = 4,500
    Hedged

    Value of Debt = 10,000


    Value of Equity = 4,000

    19,000

    c)

    14,000

    14,000

    10,000

    10,000

    6,000

    14,000

    6,000

    18,000

    10,000

    18,000

    6,000

    Unhedged
    E [Vbonds]

    (1/2)(8,000)

    (1/2)(10,000)

    9,000

    E[Vstock]

    (1/2)(0)

    (1/2)(8,000)

    4,000

    E[Vfirm]

    (1/2)(8,000)

    (1/2)(18,000)

    13,000

    E [Vbonds]

    10,000

    E[Vstock]

    4,000

    E[Vfirm]

    14,000

    Value of Debt = 9,000


    Value of Equity = 4,000
    Hedged

    Value of Debt = 10,000


    Value of Equity = 4,000

    18,000

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