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stranahan stranahan
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Posts: 3324
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2 years ago
Your investment banking firm has estimated what your new issue of bonds is likely to sell for under several different economic conditions. What is the expected (average) selling price of each bond?
         
   Recession   Steady   Boom
Probability   .25   .65   .10
Bond price   $970   $1,000   $1,150

A) $1,040.00
B) $1,100.33
C) $1,000.00
D) $1,007.50
Textbook 

Financial Management: Core Concepts


Edition: 2nd
Author:
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BleedingDrBleedingDr
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Posts: 256
2 years ago
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D -- Expected payoff = Σ payoff with subscript((i)) × probability with subscript((i)) = .25 ∗ $970 + .65 ∗ $1,000 + .10 ∗ $1,150 = $1,007.50
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