Credit risk measures using the reduced form model: assume a company has the following values for its debt issue.

Face value of the firms debt: K = $1,700

Time to maturity of the debt (tenor): T t = 0.5 year (T = maturity)

Default intensity (approx prob of default per year): = 0.055

Loss given default: = 0.350 (35%)

I have included an example of how our professor wants it answered and the normal table.

P(t,T) = 0.900

ei OVT-t 2. Credit risk measures using the structural model: assume a company has the following characteristics. Timet value of the firm's asset: At = $2,750 Expected return on assets: u = 0.05 per year Risk-free rate: r = 0.025 per year Face value of the firm's debt: K = $1,750 Time to maturity of the debt (tenor): T - t = 0.5 year Asset return volatility: 0=0.30 per year (a) Calculate the probability that the debt will default over the time to maturity. Prob of default=prob(At