Suppose a fiRm Has a Total Market Value of $900

question 120

Multiple Choice

Suppose a firm has a total market value of $900 and outstanding debt with a face value of $850. The risk-free rate of interest is 6%. If the firm will have a value of either $650 or $900 next period,
What is the rate of return on the firm's debt? (Assume the bond makes no coupon payments during
This time period.)

• A) 0.9%
• B) 6.7%
• C) 7.2%
• D) 7.8%
• E) 8.1%

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