Corporate finance-what is the overall beta of debt

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Corporate Finance

A company has two bonds outstanding: Bond A has a maturity of 1 year and a face value of 3,000, bond B has the same maturity and a face value of 1,500. Bond A, though, has a higher seniority than Bond B. One year from now the company can be in a good state or in a bad state. If it is in a good state, its assets' value will be 4,250, while if it is in a bad state its assets' value will be 2,500. Both states are equally likely to happen. The risk-free interest rate is 4.50%, the market risk premium is 7%, and the two bonds bear no systematic risk. The value of the 2 bonds is Bond A: 2631.58; Bond B: 598.09

(a) Consider the information given above, assume now that the two bonds bear some systematic risk and that the value of Bond A is 2,300 while the value of Bond B is 500. What is the overall beta of debt?

Reference no: EM131182495

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