Q2.Calculate the distance to default if the current market value of asset is 300 Million, growth is 3%, asset volatility is 15%, current liabilities are 200 Million, and non-current liabilities are 140 Million, interpret your answer.

If there are 500 firms with this distance to default, and 30 of these have defaulted, calculate the expected default probability, explain in detail the implications this number has for the future default rate?

Distance to default = ((Market Value of Assets) (Current Liabilities + 0.5 X Non Current Liabilities))/(Market Value of Assets X Asset Volatility)