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Suppose a firm has a total market value of $1,000 and outstanding debt with a face value of $900. The risk-free rate of interest is
Suppose a firm has a total market value of $1,000 and outstanding debt with a face value of $900. The risk-free rate of interest is 5%. If the firm will have a value of either $800 or $1,100 next period, what is the value of the debt in the firm?
Select one:
a. $707.32
b. $795.25
c. $841.27
d. $900.00
e. $956.32
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