Use the Information for the Question(s)below

question 11

Multiple Choice

Use the information for the question(s) below.
The current price of KD Industries stock is $20.In the next year the stock price will either go up by 20% or go down by 20%.KD pays no dividends.The one-year risk-free rate is 5% and will remain constant.
-The risk-neutral probability of a down state for KD Industries is closest to:

• A)37.5%.
• B)62.5%.
• C)40.0%.
• D)60.0%.

Comprehend the classification and priority of claims in the event of liquidation or reorganization.

Distinguish between different types of assets (e.g., free assets, pledged assets) in a bankruptcy context.

Recognize the procedural steps and requirements for filing bankruptcy, including involuntary bankruptcy.

Understand the implications and applications of fresh start accounting during reorganization.

---

Definitions:

First-Quarter Dividend

A dividend payment made by a company to its shareholders, typically announced after the first financial quarter's results.

Balance Sheet

A financial statement that shows a company's assets, liabilities, and shareholders' equity at a specific point in time.

Fixed Assets

Long-term tangible property owned by a business that is used in producing goods and services.

Retained Earnings

The portion of net income that is retained by a company rather than distributed to its shareholders as dividends.