Question

As of July​ 2009, Google​ (ticker: GOOG) had no debt. Suppose the firm were to issue

​$96 billion in​ zero-coupon senior​ debt, and another $38 billion in​ zero-coupon junior​debt, both due in January 2011. Suppose Google had 320 million shares​ outstanding, trading at $422.27 per​ share, implying a market value of $135.1 billion. The​risk-free rate over this horizon is 1.0%. Use the option data in the​ table to determine the rate Google would pay on the junior debt issue.​ (Assume perfect capital​markets.)

The rate Google would pay on the junior debt issue is what percent?

GOOG		422.27	7.87
Jul 13 2009 @ 13:10EST		Vol	2177516
Calls	Bid	Ask	Open Int
11 Jan 150.0 (OZF AJ)	273.6	276.9	100
11 Jan 160.0 (OZF AL)	264.5	267.52	82
11 Jan 200.0 (OZF AA)	228.9	231.2	172
11 Jan 250.00 (OZF AU)	186.5	188.8	103
11 Jan 280.0 (OZF AX)	162.8	165	98
11 Jan 300.0 (OZF AT)	148.2	150.1	408
11 Jan 320.0 (OZF AD)	133.9	135.9	63
11 Jan 340.0 (OZF AI)	120.5	122.6	99
11 Jan 350.0 (OZF AK)	114.1	116.1	269
11 Jan 360.0 (OZF AM)	107.9	110	66
11 Jan 380.0 (OZF AZ)	95.8	98	88
11 Jan 400.0 (OZF AU)	85.1	87	2577
11 Jan 420.0 (OZF AG)	74.6	76.9	66
11 Jan 450.0 (OZF AV)	61.8	63.3	379

Answer 1