A risk team at an investment bank uses the KMV model to estimate the distance to default and expected default frequency in evaluating default conditions of both potential and existing client firms. One such client currently has total assets valued at USD 25 billion, asset volatility of 28% per annum, short-term debt of USD 10 billion, and long-term debt of USD 6 billion. The expected return on the firms assets is 5.5% per year and the risk free rate is 2% per year. The firm does not pay any dividends. The rating schedule at a 1-year horizon is shown in the table below: