Use the Information for the Question(s)below

question 51

Multiple Choice

Use the information for the question(s) below.
Monsters Incorporated (MI) is ready to launch a new product.Depending upon the success of this product,MI will have a value of either $100 million,$150 million,or $191 million,with each outcome being equally likely.The cash flows are unrelated to the state of the economy (i.e.risk from the project is diversifiable) so that the project has a beta of 0 and a cost of capital equal to the risk-free rate,which is currently 5%.Assume that the capital markets are perfect.
-Assume that in the event of default,20% of the value of MI's assets will be lost in bankruptcy costs and suppose that MI has zero-coupon debt with a $125 million face value due next year.The yield to maturity of MI's debt is closest to:

• A)13.75%.
• B)5.00%.
• C)19.25%.
• D)12.50%.

---

Definitions:

Carboxylic Acid

Organic compounds that contain a carboxyl group (-COOH), which consists of a carbon atom double-bonded to an oxygen atom and single-bonded to a hydroxyl group.

Oligopeptide

An oligopeptide is a short chain of amino acids, typically having fewer than 20 residues, connected by peptide bonds.

Polypeptide

A linear organic polymer consisting of a large number of amino-acid residues bonded together in a chain, forming part of (or the whole of) a protein molecule.

Blueprint

A detailed technical drawing or plan used for the design and construction of buildings, machinery, or systems.