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Suppose that you run a corporation and have a risky 1-year project that you want to invest but you need to raise financing (SEO) for
Suppose that you run a corporation and have a risky 1-year project that you want to invest but you need to raise financing (SEO) for this project. The end-of-year net cash flow derived from the project will be $30,000 in Normal economic conditions, $20,000 in recession, and $70,000 in Booming conditions. Each state of the economy has a realizing probability of 1/3. The risk-free investment in T-bills pays 6% per year. Suppose the current risk premium is 10%. How much financing could you raise for your project?
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