FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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R2

You would like to know the beta of debt for cooper Industries. The value of coopers
outstanding equity is $40 million, and you have estimated its beta to be 1.2. However,
you cannot find enough market data to estimate the beta of its debt, so you decide to
use the Black-Scholes formula to find an approximate value for the debt beta. cooper
has four-year zero-coupon debt outstanding with a face value of $100 million that
currently trades for $75 million. Cooper pays no dividends and reinvests all of its
earnings. The four-year risk-free rate of interest is currently 5.13%. What is the beta of
cooper's debt?
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Transcribed Image Text:You would like to know the beta of debt for cooper Industries. The value of coopers outstanding equity is $40 million, and you have estimated its beta to be 1.2. However, you cannot find enough market data to estimate the beta of its debt, so you decide to use the Black-Scholes formula to find an approximate value for the debt beta. cooper has four-year zero-coupon debt outstanding with a face value of $100 million that currently trades for $75 million. Cooper pays no dividends and reinvests all of its earnings. The four-year risk-free rate of interest is currently 5.13%. What is the beta of cooper's debt?
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