A firm has assets of $200,000 and total debts of $175,000. With an option pricing model, the

Question:

A firm has assets of $200,000 and total debts of $175,000. With an option pricing model, the implied volatility of the value of the firm’s assets is estimated at $10,730. Under the Moody’s Analytic method, what is the expected default frequency (assuming a normal distribution for assets)?

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