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  3. assume that a company has raised $2,000 in capital

Assume that a company has raised $2,000 in capital for investment projects: $1,000 is from...

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Finance

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Assume that a company has raised $2,000 in capital for investment projects: $1,000 is from bondholders and $1,000 is from stockholders. Assume that bonds have one year till maturity and an 9% interest rate Project A is a low risk project with an up-front cols of $2,000. This project will give payoffs of $2,000 in weak market and $2,400 in strong market. The probabilities are 50% for each outcome Project B is a high risk project with the same cost and payoffs equal to 0 (zero) if market is in turmoil and $4,400 if markets are stable a. Find expected payoff to bondholders and shareholders in case of Project A b. Find expected payoff to bondholders and shareholders for Project B c. Which investment project do shareholders prefer and why? d Which project do bondholders like the best? Why

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