We know the prices and payofte for securities 1 and 2 and they are represented as follows. Cash Flow in One Year Security Market Price Today Weak Economy Strong Economy 1 $35 SO $100 $55 S100 SD The risk-free rate was calculated to be 11.1111%. Assume the probabilities of the weak sconomy and the strong economy are both 0.50. Suppose a company will last one year and its assets will generate payoffs in one year as follows. Complete parts a through c. Asset Payoffs in One Year ($) Weak Economy Strong Economy $6.000 $18,000 . What is the value of the assets today? What is the expected payoff from the assets in one year? What is the expected retum of the assets and what is the risk premium for the assets? The assets today have a value of $ 900. (Do not round until the final answer. There round to the nearest collar) In one year, the expected payoff from the assets is $ 11000. (Do not round until the final answer. There round to the nearest collar) The expected return of the assets is 23.5955 % Do not round until the final answer. Then round to four decimal places.) The riek premium is 12.4844% (Round the final answer to four decimal places. Round all intermediate values to four decimal places as needed.) b. Suppose the company created a bond that promised its investor 54,000 in one year. The payment would exorce from the asset payoff and any remaining xayot from the assets would go to the conxony's equity holder. i. What will be the payoffs and expected payoff in one year from the bond and from the equity? The expectextiyor of the Ixnidis 4000 (Do not round until the final answer. Then round to the nearest dollar.) The expectexi xiyoff of the exquity is $ 7000 (Do not rourid until the final answer. Then rund to the nearest ccllar) b. ii. What is the value of the company's bond? The value of the company's bond is $ (Do not round until the final answer. Then round to the nearest dollar.) We know the prices and payofte for securities 1 and 2 and they are represented as follows. Cash Flow in One Year Security Market Price Today Weak Economy Strong Economy 1 $35 SO $100 $55 S100 SD The risk-free rate was calculated to be 11.1111%. Assume the probabilities of the weak sconomy and the strong economy are both 0.50. Suppose a company will last one year and its assets will generate payoffs in one year as follows. Complete parts a through c. Asset Payoffs in One Year ($) Weak Economy Strong Economy $6.000 $18,000 . What is the value of the assets today? What is the expected payoff from the assets in one year? What is the expected retum of the assets and what is the risk premium for the assets? The assets today have a value of $ 900. (Do not round until the final answer. There round to the nearest collar) In one year, the expected payoff from the assets is $ 11000. (Do not round until the final answer. There round to the nearest collar) The expected return of the assets is 23.5955 % Do not round until the final answer. Then round to four decimal places.) The riek premium is 12.4844% (Round the final answer to four decimal places. Round all intermediate values to four decimal places as needed.) b. Suppose the company created a bond that promised its investor 54,000 in one year. The payment would exorce from the asset payoff and any remaining xayot from the assets would go to the conxony's equity holder. i. What will be the payoffs and expected payoff in one year from the bond and from the equity? The expectextiyor of the Ixnidis 4000 (Do not round until the final answer. Then round to the nearest dollar.) The expectexi xiyoff of the exquity is $ 7000 (Do not rourid until the final answer. Then rund to the nearest ccllar) b. ii. What is the value of the company's bond? The value of the company's bond is $ (Do not round until the final answer. Then round to the nearest dollar.)
