Question
Given the following: Stock equals 100 Stock volatility of 40% Debt maturity of 5 years Debt Face value of 150 Risk-free rate of 3% Use
Given the following: Stock equals 100 Stock volatility of 40% Debt maturity of 5 years Debt Face value of 150 Risk-free rate of 3% Use Mertons model to find the asset value and asset volatility? What is the risk-neutral probability of default over the debts maturity and the annualized default probability? What is the market spread for the debt? What is the implied Recovery Rate?
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Financial Markets and Institutions
Authors: Frederic S. Mishkin, Stanley G. Eakins
5th edition
321280299, 321280296, 978-0321280299
