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The answer is C, wanna know how to get it. Thank you. An entrepreneur has two mutually exclusive business ideas that have the same cost
The answer is C, wanna know how to get it. Thank you.
An entrepreneur has two mutually exclusive business ideas that have the same cost of 10 and the same one-year life. Unfortunately, she has no money and needs to raise the necessary funds as debt. The first project (safe project) returns in one year 15 for sure, while the second project (risky project) returns 120 with a 10% probability and 0 with a 90% probability Assume that everybody is risk-neutral, that the interest rate is 0, and that the entrepreneur cannot commit to the choice of one project before the debt is issued. In equilibrium what is the face value of the debt issued? A. 10 B. 12 C. 100 D. 120 E. I choose not toStep by Step Solution
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