The TrunkLine Company Debtholders Are Promised Payments of $35 If

question 24

Multiple Choice

The TrunkLine Company debtholders are promised payments of $35 if the firm does well, but will receive only $20 if the firm does poorly. If the bonds are selling at a price of $25, the promised return to the bondholders is approximately:

• A) 2.90%.
• B) 40.00%.
• C) 27.30%.
• D) 16.86%.
• E) 100.00%.

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