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Q2: For this question, assume that if GM defaults, creditors will lose 95% of their money. In this scenario, only two cases exist: Getting the
Q2: For this question, assume that if GM defaults, creditors will lose 95% of their money. In this scenario, only two cases exist: Getting the full $10 million or getting $0.5 million. Using the One Time Up-front Payment table in your case, estimate the default probability of GM on June 2008, July 2008, and December 2008 respectively. Discount rate is 3% annual. For all the calculations, assume there is 1 year left until the period, i.e. discount future cash flows by (1+3%)^1. Ignore Annual Fees.
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