Use the Information Below to Answer the Following Question

question 36

Multiple Choice

Use the information below to answer the following question.
S&C Co. has a zero coupon bond issue outstanding with a face value of $20,000 that matures in one year. The current market value of the firm's assets is $23,000. The standard deviation of the return on the firm's assets is 52 percent per year, and the annual risk-free rate is 6 percent per year, compounded continuously. What is the firm's continuously compounded cost of debt?

• A) 11.24 percent
• B) 20.32 percent
• C) 16.48 percent
• D) 18.69 percent
• E) 17.09 percent

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Definitions:

Misinformation Effect

The phenomenon where a person's memory and perception are influenced by incorrect or misleading information presented after an event.

Implicit Memory

A type of long-term memory that influences thoughts and behaviors unconsciously, without conscious awareness.

Proactive Interference

A phenomenon where old memories hinder the recall of new information.

Recognition

The cognitive process of identifying a familiar stimulus from among a variety of unfamiliar ones.