Rackin Pinion Corporations assets are currently worth $1,150. In one year, they will be worth either $1,110 or $1,400. The risk-free interest rate is 2 percent. Suppose Rackin Pinion has an outstanding debt issue with a face value of $1,000.

a.	What is the value of the equity? (Round your answer to 2 decimal places. (e.g., 32.16))

Equity value

$

b-1	What is the value of the debt? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Debt value

$

b-2	What is the interest rate on the debt? (Do not round intermediate calculations.)

Interest rate

%

c.

Would the value of the equity go up or down if the risk-free rate were 5 percent?

	Decrease
	Increase