The TrunkLine Company Will Earn $60 in One Year If

question 13

Multiple Choice

The TrunkLine Company will earn $60 in one year if it does well. The debtholders are promised payments of $35 in one year if the firm does well. If the firm does poorly,expected earnings in one year will be $30 and the repayment will be $20 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 10%.

• A) $25.00
• B) $27.50
• C) $29.55
• D) $32.50
• E) $35.00

---

Definitions:

Call-To-Action Conclusion

The part of a communication that prompts the audience to take a specific action, typically found at the end.

Passive Voice

A construct in grammar where the subject of the sentence is acted upon by the verb, often used to shift focus or deflect responsibility.

Active Voice

Active voice is a sentence construction where the subject performs the action stated by the verb, focusing on who is doing the action.

First Drafts

The initial versions of a written document or creative work, which are usually revised and edited to improve clarity, structure, and content.