Problem 7, Option 1:

Currently Novavax has zero-coupon debt that requires them to pay back $18,000,000 two years from now.Given this loan, the market value of Novavax Inc.'s equity is $5,000,000 and has a volatility of 55% per year.The annual risk-free rate is .02 at all maturities.Novavax has no other debt.What are the estimates of the following values for Novavax based on the Merton Model?Provide a spreadsheet.

Volatility of Assets () = _______________

Value of Assets (V₀) = _________________

Market Value of the Debt now = _________________

Required return on Debt now = ____________________________

Value of Debt if it is risk free = _________________

Expected Loss from default = __________________

Probability of default on the debt = _______________

Expected recovery rate on the debt = __________________