Question: Friendly robotics incorporated will earn $60 in one year if it does well. The debtholders are promised payments 53. Friendly Robotics Incorporated will earn $60

Friendly robotics incorporated will earn $60 in one year if it does well. The debtholders are promised payments

Friendly robotics incorporated will earn $60 in one year if it does

53. Friendly Robotics Incorporated will earn $60 in one year if it does well. The debtholders are promised payments of $40 in one year if the firm does well. If the firm does poorly, expected earnings in one year will be $10 and the repayment will only be $5. The probability of the firm performing well is 40%. If bondholders are fully aware of these costs what will they pay for the debt? The interest rate on the bonds is 7%. A. $17.76 B. $32.55 C. $38.75

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