1. Indicate which of the following statements about Merton and CreditGrades models are correct. You do not need to provide an explanation for your answer, but if you feel like please do (as long as it is short).

I. Asset/equity volatility plays a central role in both Merton and CreditGrades models.

II. Asset values are assumed to follow a lognormal process (geometric Brownian motion) in both models.

III. In both models default is triggered when asset values fall below a deterministic barrier.

IV. In both models default can only happen at maturity T.