You Would Like to Know the Beta of Debt for KT

question 38

Multiple Choice

You would like to know the beta of debt for KT Industries.The value of KT's outstanding equity is $50 million,and you have estimated its beta to be 1.62.You cannot,however,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.KT has a five year zero coupon bond outstanding with a market value of $80 million.If the estimated D from the Black-Scholes model is .60,then the beta for KT's debt is closest to:

• A) 1.00
• B) 0.59
• C) 0.90
• D) 2.70

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Definitions:

Marcus Aurelius

Roman Emperor from 161 to 180 AD and a Stoic philosopher, known for his work 'Meditations' and his role in the Roman Empire's history.

Rome's Glory

A reference to the period of prosperity and expansive power of the Roman Empire, marked by significant achievements in architecture, engineering, law, and the arts.

Prestige Adornment

Objects or accessories worn that signify wealth, status, or authority, often made from precious materials and detailed craftsmanship.

Cloisonné

A decorative metalwork technique employing cloisons; also, decorative brickwork in later Byzantine architecture.