An Example on the Calculation of the Merton's Model (The example is from the book) "A firm is issuing a two-year debt in the amount of $200,000. The current market value of the assets is $300,000. The risk-free rate is 4 percent and the standard deviation of the rate of change in the underlying assets of the borrower is 20 percent. Using an options framework, determine the following: The current market value of the loan. b. The risk premium to be charged on the loan. Answer: a. The following need to be estimated first and