ABC corporation is an all equity firm with a current market value of $ 100,
and will be worth $ 150 or $ in one year. The risk-free interest rate is 12.5 %.
Suppose ABC wants to raise $ 50 today by issuing debt with face value of $ D

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maturing in one year. Assuming perfect capital markets use the binomial model
to answer the following:
1. What is the face value of the newly issued debt (i.e., the value of $ D
necessity to raise $ 50 today)?
2. Suppose ABC wants to raise $ 40 (instead of $ 50). What is the value of
the newly issued debt in that case?