2) Brad\'s Robotics Incorporated will earn $60 in one year if it does well. The

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2) Brad's Robotics Incorporated will earn $60 in one year if it does well. The debtholders are promised payments of $40 in one year if the firm does well. If the firm does poorly, expected earnings in one year will be $10 and the repayment will be $5 because of the dead weight cost of bankruptcy. The probability of the firm performing poorly or well is 40%. If bondholders are fully aware of these costs what will they pay for the debt? The interest rate on the bonds is 7%.

$16.82

$19.73 $32.55 $38.75 $39.04

Explanation / Answer

i choose that 38.75

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2) Brad\'s Robotics Incorporated will earn $60 in one year if it does well. The

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2) Brad\'s Robotics Incorporated will earn $60 in one year if it does well. The

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