3. Assume that a company has 100,000 shares outstanding and that the stock is trading at $8 with a stock price volatility of 50% per year. The company has $500,000 in debt (face value)

that matures in six months. The risk-free rate is 3%. Solve for the asset value and the asset volatility of the firm. What is the distance to default and the probability of default? What is the market value of the debt?