Mrs. Vega wants to start a firm with a new project. The project requires $1,000 today and it will deliver $3,000 with probability 0.75 or $0 with probability 0.25 (independently of the economy). She wants to start the firm with $500 in equity and $500 in debt. If the risk-free rate is 5%, how much interest would debtholders charge?

Mrs. Vega wants to start a firm with a new project. The project requires $1,000 today and it will deliver $3,000 with probability 0.75 or $0 with probability 0.25 (independently of the economy). She wants to start the firm with $500 in equity and $500 in debt. If the risk-free rate is 5%, how much interest would debtholders charge?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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