Big Ed's Electrical Has a Pure Discount Bond That Comes

Big Ed's Electrical has a pure discount bond that comes due in one year and has a face value of $1,000. The risk-free rate of return is 4%. The assets of Big Ed's are expected to be worth either $800 or $1,300 in one year. Currently,these assets are worth $1,140. What is the current value of the debt of Big Ed's Electrical?

A) $222.46
B) $370.77
C) $514.28
D) $769.23
E) $917.54

Correct Answer:

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