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Question 3 (26 points) Suppose there are three states next year: the good, the medium and the bad, which would realize with equal probability. The

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Question 3 (26 points) Suppose there are three states next year: the good, the medium and the bad, which would realize with equal probability. The values of the assets of company XYZ in different states are documented in the table below: State Prob. Assets ($ million) Good 1/3 150 Medium 1/3 60 Bad 1/3 30 XYZ has some debt outstanding with the total face value of $80M. Assume that the discount rate is zero for all claims. a) (10 points) Write down the payoffs of the debt and equity in each of the three states next year. What are the valuations of debt and equity today

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