You are valuing the equity in a firm with \($800\) million (face value) in debt with an average duration of six years and assets with an estimated value of \($400\) million. The standard deviation in asset value is 30%.

With these inputs (and a riskless rate of 6%) we obtain the following values (approximately) for d1 and d2:

Estimate the default spread (over and above the risk-free rate) that you would charge for the debt in this firm.

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d1=-0.15 d2 = -0.90