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Question
James, Inc. has zero-coupon outstanding debt maturing in 8 years. In rank of seniority, each pays at maturity $20 million, $15 million, and $40 million. Assume asset value = $60 million,r = 0.05, σ = 0.28, and no dividend is paid. What is the yield on the $15 million subordinate debt?
A) 5.72%
B) 6.72%
C) 7.72%
D) 8.72%
Answer
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