The current value of a firm is $1,400. Te firm has $1,000 in pure debt due in one year and the risk-free rate is 6%. The firm's asset will be worth either $1,200 or $1,500 in one year. What is the interest rate on the debt? A. 6.0% B. 7.0% C. 7.5% D. 11.0% E. 13.0%
The current value of a firm is $1,400. Te firm has $1,000 in pure debt due in one year and the risk-free rate is 6%. The firm's asset will be worth either $1,200 or $1,500 in one year. What is the interest rate on the debt? A. 6.0% B. 7.0% C. 7.5% D. 11.0% E. 13.0%
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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The current value of a firm is $1,400. Te firm has $1,000 in pure debt due in one year and the risk-free rate is 6%. The firm's asset will be worth either $1,200 or $1,500 in one year. What is the interest rate on the debt?
A. 6.0%
B. 7.0%
C. 7.5%
D. 11.0%
E. 13.0%
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