Trumbull, Inc

question 16

Multiple Choice

Trumbull, Inc., has total value (debt plus equity) of $500 million and $200 million face value of 1-year zero coupon debt. The volatility of Trumbull's total value is 0.60, and the risk-free rate is 5%. Assume that N(d1) = 0.9720 and N(d2) = 0.9050.
-What is the yield on Trumbull's debt?

• A) 6.04%
• B) 6.36%
• C) 6.70%
• D) 7.05%
• E) 7.42%

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Definitions:

Indirect Method

A method used in cash flow statement preparation that adjusts net income for changes in balance sheet accounts to convert it from accrual to cash basis.

Net Income

The total profit of a company after subtracting all expenses, taxes, and costs from total revenue.

Statement Of Cash Flows

A financial statement that highlights the major activities that impact cash flows and, hence, affect the overall cash balance.

Operating Activities

These involve the primary day-to-day activities of a business, such as sales and the purchase of goods or services, which are reflected in its cash flow.