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mixas84 [53]
3 years ago
12

The TrunkLine Company will earn $60 in one year if it does well. The debtholders are promised payments of $35 in one year if the

firm does well. If the firm does poorly, expected earnings in one year will be $30 and the repayment will be $20 because of the dead weight cost of bankruptcy. The probability of the firm performing poorly or well is 50%.
If bondholders are fully aware of these costs what will they pay for the debt?

The interest rate on the bonds is 10%.


a. $25.00

b. $27.50

c. $29.55

d. $32.50

e. $35.00
Business
1 answer:
Yuliya22 [10]3 years ago
6 0

Answer:

The answer is a. $25.00

Explanation:

The bondholder's cash flow in one-year time from holding a TrunkLine's bond is calculated as:

(The possibility of TrunkLine doing well x Repayment receipt in case TrunkLine doing well) + (The possibility of TrunkLine doing poorly x Repayment receipt in case TrunkLine doing poorly) = (0.5 x 35) + (0.5 x 20) = $27.50.

The current price bondholders are willing to pay for a bond is equal to the present value of a bond's cash flow in one-year time, discounted at the interest rate on the bond 10% which is calculated as below:

27.50 / (1+10%)^1 = $25

Thus, the correct choice is a. $25.00

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The correct answer is D. The international banking system consists of a network of world economic institutions.

Explanation:

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<h3>What is a Venture capital?</h3>

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Discuss social responsibility and ethics?<br><br>​
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4 years ago
Which of the following is likely to increase a country's gross domestic product (GDP)?
antiseptic1488 [7]

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GDP can be measured by adding up all the final demands for goods and services in a given period. In this case, the destination of the production is being quantified. There are four major areas of spending: household consumption (C), government consumption (G), investment in new capital (I) and the net results of foreign trade (exports-imports).

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Barbara is a producer in a monopoly industry. Her demand curve, total revenue curve, marginal revenue curve and total cost curve
andrey2020 [161]

Answer:

22

Explanation:

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The price of the her product

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P = 88 / 4 = 22

4 0
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