Suppose that the managers at rearden metal will increase risk to maximize the expected payoff to equity holders. of rearden has $230 million in debt due in one year, then the expected value of rearden assets are closest to:
a) $900 million
b) $280 million
c) $300 million
d) $295 million

D) $295 million

Explanation:

I can say that based on the information provided within the question the expected value of the Rearden assests are close to $295 million. This would be calculated as the following.

Expected Payoff to equity holders w/o increase in risk:

Equity = 1/3($200 - $200) + 1/3($300 - $230) + 1/3($400 - $230) = $70 million

Expected Payoff to equity holders w/increase in risk:

Equity = (50%)($200 - $200) + (5%)($300 - $230) + (45%)($400 - $230) = $80 million

Therefore Rearden's managers will increase the risk and the expected value of Rearden's assets is:

assets= (50%)($200) + (5%)($300) + (45%)($400) = $295 million

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she does?

explanation:

it was decent, could have been a little better.. how bout you lol.