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Suppose a project requires a $3000 investment today. In one year there are two possible outcomes: success that occurs with a 70% probability and pays
Suppose a project requires a $3000 investment today. In one year there are two possible outcomes: success that occurs with a 70% probability and pays out $4,500 and failure that occurs with a 30% probability and pays out $1000. You finance the project with a $1000 bond, payable in one year, and $2000 in stock. What is the payout to the stockholder in the failure state?
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