Suppose a firm has a total market value of $900 and outstanding debt with a face value of $850. The risk-free rate of interest is 6%. If the firm will have a value of either $650 or $900 next period, what is the value of the debt in the firm?
A) $782.59
B) $788.92
C) $792.64
D) $800.00
E) $842.64

Question

Quizplus · Accepted Answer

The Answer of Suppose a firm has a total market value of $900 and outstanding debt with a face value of $850. The risk-free rate of interest is 6%. If the firm will have a value of either $650 or $900 next period, what is the value of the debt in the firm?
A) $782.59
B) $788.92
C) $792.64
D) $800.00
E) $842.64

Suppose a Firm Has a Total Market Value of $900