Question
The current value of the company assets is $12 million with a volatility of 20% pa. It has issued a ZCB with face value of
The current value of the company assets is $12 million with a volatility of 20% pa. It has issued a ZCB with face value of $5 million maturing in 6 months. The risk-free interest rate is 4% pa cont.comp. Assume Mertons Model holds. Compute the market value of the equity under Black-Scholes-Merton framework and the probability that the company will default.
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Investment Analysis And Portfolio Management
Authors: Frank K. Reilly, Keith C. Brown
7th Edition
0324171730, 978-0324171730
