The TrunkLine Company Will Earn £60 in One Year If

Multiple Choice

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