3. The value of a company's equity at time t = 0, Eo, is $2 million and the volatility of its equity, o e, is 50%. The face value of debt that will expire in one year is $5 million. In addition, the 1-year risk-free rate is 4% per annum. What is the probability of default implied by Merton's model? The Merton model is given by Eo V.N (d) De--TN (da) (1) where di = In (V/D) + (r + %)T OVVT d - OVVT d2 To obtain the probability of default, use the fact that O EE= N (di)ov Vo = (2) I in conjunction with Eo = V.N (di) - De="T N (d2) 3. The value of a company's equity at time t = 0, Eo, is $2 million and the volatility of its equity, o e, is 50%. The face value of debt that will expire in one year is $5 million. In addition, the 1-year risk-free rate is 4% per annum. What is the probability of default implied by Merton's model? The Merton model is given by Eo V.N (d) De--TN (da) (1) where di = In (V/D) + (r + %)T OVVT d - OVVT d2 To obtain the probability of default, use the fact that O EE= N (di)ov Vo = (2) I in conjunction with Eo = V.N (di) - De="T N (d2)