Loveland Enterprises Will Earn $70 in One Year If It

question 12

Multiple Choice

Loveland Enterprises will earn $70 in one year if it does well.The debtholders are promised payments of $40 in one year if the firm does well.If the firm does poorly,expected earnings in one year will be $35 and the repayment will be $25 because of the dead weight cost of bankruptcy.The probability of the firm performing poorly or well is 50%.If bondholders are fully aware of these costs what will they pay for the debt? The interest rate on the bonds is 9%.

• A)$23.50
• B)$25.00
• C)$27.50
• D)$29.82
• E)$35.00

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Definitions:

Dysfunctional Beliefs

Negative, often unrealistic thoughts that may contribute to and exacerbate emotional disorders and distress.

Interpretive Biases

Cognitive biases that affect the way individuals perceive and interpret information, events, or the behavior of others.

Somatic Symptom

A physical symptom that can be felt or experienced, which is attributed to psychological distress rather than a physical cause.

Pharmacological Intervention

The use of medications in the treatment or management of a disease or disorder.