1. Imagine a firm is financed with equity and debt and the equity holder makes decisions for the firm. The debt's fixed claim is $150. The firm is considering whether to invest in one of two projects. Project A: 50% chance of a payoff of $100 and 50% chance of a payoff of $200 Project B: 50% chance of a payoff of $90 and a 50% chance of a payoff of $210. If the firm cannot pay the debt's claim in full, the debtholder gets whatever payoff is available and equity gets nothing. A. What is the expected value of debt in Project A? B. What is the expected value of equity in Project A? C. What is the expected value of debt in Project B? D. What is the expected value of equity in Project B ? E. Which project would the firm take? Why? F. Calculate the interest rate on debt as the discount rate on the $500 face value of the debt such that discounted value equals the expected value. a. What is the interest rate on debt in Project A? b. What is the interest rate on debt in Project B? c. What is the interest rate that debtholders will demand? Why? G. If the payoff in the bad state for project A decreases from 100 to 90 , how does the value of equity of Project A change? How does the interest rate change? H. If the payoff in the good state for project A increases from 200 to 210 , how does the value of equity change? How does the interest rate change? I. What do your answers to parts G and H imply about the relationship between upside and downside outcomes for debt and equity values