Pricing the bond:
Suppose the bond sells for $120
|
Project |
0 |
1 |
2 |
NPV |
|
A |
-50 |
100 |
50 |
100 |
|
B |
-75 |
100 |
25 |
|
|
Bond |
120 |
-20 |
-100 |
|
|
Div(A+B) |
||||
|
Div(A) |
If the shareholder accept both A and B their total dividends
are less than if they just accept project A and then default.
What will bondholders receiving?
How does that compare to how much they paid for the bonds?
Are bondholders stupid?
What happens?