A firm sells a What promises to pay C eaeh year forever. 1it"ott are eertain the rm will pay next year, but after that, there is a probability p each year that the rm will fail and not make any of the subsequent payments. The interest rate is r. In any given year, there is, of eourse, a probability (lp] that the rm will not fail and make the paymentl but the following year there will again be a probability p the firm will fail. What is the expected Tvalue today of the W payment in 3 years? In j years\"?I {Remember that you are certain the rm will make its payment in one Q, the ehanee of failure only starts after that.) What is the value of the W? A "risk premium\" is an additional amount added to the risk-free interest rate to discount a risky asset. E if riskfree interest rate is r, and the risk premium is x, the value of a risky s'o'eam of ineome E is u [ gladHy) 2: In this simple example, what is the relationship between the risk premium and the probability of failure