Suppose a firm has a total market value of $1,000 and outstanding debt with a face value of $900. The risk-free rate of interest is 5%.

Suppose a firm has a total market value of $1,000 and outstanding debt with a face value of $900. The risk-free rate of interest is 5%. If the firm will have a value of either $800 or $1,100 next period, what is the value of the debt in the firm?

Select one:

a. $707.32

b. $795.25

c. $841.27

d. $900.00

e. $956.32