Rackin Pinion Corporations assets are currently worth $1,065. In one year, they will be worth either $1,000 or $1,340. The risk-free interest rate is 3.9 percent. Suppose the company has an outstanding debt with a face value of $1,000.

A) What is the value of equity?

B) What is the value of debt? The interest rate on debt?

C) Would the value of equity go up or down if the risk-free interest rate were 20 percent? What does your answer illustrate?