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QUESTION
The world is risk-neutral, and all securities pay 10% per annum. A firm has an equal probability of being worth $10, $20, or $30 next year.
The world is risk-neutral, and all securities pay 10% per annum. A firm has an equal probability of being worth $10, $20, or $30 next year. What rate of return does the firm have to promise creditors if it wants to borrow $15 this year?
