Use the Information for the Question(s)below

question 10

Multiple Choice

Use the information for the question(s) below.
Monsters Incorporated (MI) is ready to launch a new product.Depending upon the success of this product,MI will have a value of either $100 million,$150 million,or $191 million,with each outcome being equally likely.The cash flows are unrelated to the state of the economy (i.e.risk from the project is diversifiable) so that the project has a beta of 0 and a cost of capital equal to the risk-free rate,which is currently 5%.Assume that the capital markets are perfect.
-Suppose that MI has zero-coupon debt with a $125 million face value due next year.The yield to maturity of MI's debt is closest to:

• A)12.5%.
• B)7.8%.
• C)25.0%.
• D)5.0%.

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Definitions:

Bone Marrow Transplantation

A medical procedure to replace damaged or diseased bone marrow with healthy bone marrow stem cells.

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A type of radiographic examination that uses a contrast medium to detect abnormalities in the spinal canal, including the spinal cord and nerve roots.

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A type of bone cancer that typically starts in the long bones of the body, such as those in the arms or legs.

Primary Site

The original location where a disease, such as cancer, begins in the body.