The value of the HILEV firm at the end of one year can be $50 m or $100 m with an equal probability of 0.5. The firm has debt with a face value of $50 m that matures in one year. Assume that investors are risk-neutral, and the risk-free rate is zero. The CEO of the firm decides to substitute assets of the firm with more risky assets immediately so that the value of the firm at the end of one year is either $30 m or $120 m with an equal probability of 0.5. This asset substitution leads to _____________________.

Answer rating: 100% (QA)

H e w x x ENG 16 0759 B 11032020 21 X HK231 fx HD HE HF HG HH HI HJ HK HL HM 208 AMOUNT OF D... View the full answer