Windsor Company's debtholders are promised payments of $45 if the firm does well,but will receive only $20 if the firm does poorly.Bondholders are willing to pay $35.The promised return to the bondholders is approximately
A)2.9%
B)14.3%
C)15.0%
D)22.1%
E)28.6%

Question

Quizplus · Accepted Answer

The promised return is calculated as (Promised Payment - Price Paid) / Price Paid. If the firm does well, bondholders receive $45. Thus, the return is ($45 - $35) / $35 = 28.6%.

Windsor Company's Debtholders Are Promised Payments of $45 If the Firm