2) Brad\'s Robotics Incorporated will earn $60 in one year if it does well. The
ID: 2635818 • Letter: 2
Question
2) Brad's 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 be $5 because of the dead weight cost of bankruptcy. The probability of the firm performing poorly or 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%.
$16.82
$16.82
$19.73 $32.55 $38.75 $39.04Explanation / Answer
i choose that 38.75