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Debt Swap. Suppose a country has 100 units of debt outstanding. In the good state of the world the country can repay its debts in full, in the bad state of the world, the country can repay only 40. The good and the bad states occur with equal probability. a. Calculate the repayments the creditors arc expecting to receive. b. Find the secondary market price of one unit of debt. Now assume that the country wants to restructure its debt. It announces that it will introduce one new security to replace the 40 old securities outstanding by means of a debt swap. This new security will pay in full in the good and the bad states. This new securities is senior to the old existing debt. a. At what rate can the government swap old securities for new securities? b. What is the net effect of this debt restructuring on the expected repayments to creditors? Debt Swap. Suppose a country has 100 units of debt outstanding. In the good state of the world the country can repay its debts in full, in the bad state of the world, the country can repay only 40. The good and the bad states occur with equal probability. a. Calculate the repayments the creditors arc expecting to receive. b. Find the secondary market price of one unit of debt. Now assume that the country wants to restructure its debt. It announces that it will introduce one new security to replace the 40 old securities outstanding by means of a debt swap. This new security will pay in full in the good and the bad states. This new securities is senior to the old existing debt. a. At what rate can the government swap old securities for new securities? b. What is the net effect of this debt restructuring on the expected repayments to creditors

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