Question: ClearOne Elec Co. has a bond issue with a face value of $1,000 that is due in one year. The value of ClearOne Elecs assets

ClearOne Elec Co. has a bond issue with a face value of $1,000 that is due in one year. The value of ClearOne Elecs assets is currently $1,200. The CEO believes that the assets in the firm will be worth either $920 or $1,400 in a year. The going rate on one-year T-Bill is 2.8%.

(1) What is the value of the equity?

(2) What is the value of the debt?

(3) What is the interest rate of the current value of the debt?

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