Multiple Choice
Suppose a firm has a total market value of $900 and outstanding debt with a face value of $850. The risk-free rate of interest is 6%. If the firm will have a value of either $650 or $900 next period, what is the rate of return on the firm's debt? (Assume the bond makes no coupon payments during this time period.)
A) 0.9%
B) 6.7%
C) 7.2%
D) 7.8%
E) 8.1%
Correct Answer:
Verified
Correct Answer:
Verified
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