There are two periods: 0 and 1. A newly formed company wants to invest in an...

 

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There are two periods: 0 and 1. A newly formed company wants to invest in an apple tree, which produces apples only at period 1. There are three states at period 1: good, fair and bad and the tree produces 60, 30 and 20 apples in these states, respectively. The company decides to issue one bond to finance the purchase of the tree and promises to pay the bondholder 13 apples regardless of the realized state. To raise additional funds, the company also issues one stock. How many apples will the stock pay in the good state? There are two periods: 0 and 1. A newly formed company wants to invest in an apple tree, which produces apples only at period 1. There are three states at period 1: good, fair and bad and the tree produces 60, 30 and 20 apples in these states, respectively. The company decides to issue one bond to finance the purchase of the tree and promises to pay the bondholder 13 apples regardless of the realized state. To raise additional funds, the company also issues one stock. How many apples will the stock pay in the good state?

Answer rating: 100% (QA)

The stock will pay 47 apples in the good state The tree ... View the full answer