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The enterprise value of the Maxcourage Corporation is $130 million. The company has issued a zero-coupon bond with a face value of $100 million which
The enterprise value of the Maxcourage Corporation is $130 million. The company has issued a zero-coupon bond with a face value of $100 million which expects to mature in five years. The expected rate of change of the firm's value is 25%. The firm's assets have an annual volatility (standard deviation) of 30%. Assume that firm value is lognormally distributed, with constant volatility. You are required to estimate the distance to default using the Merton model.
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The Merton model also known as the structural credit risk model is a widely used model for estimating a firms distance to default the probability of d...
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Financial Reporting And Analysis
Authors: Lawrence Revsine, Daniel Collins, Bruce Johnson, Fred Mittelstaedt, Leonard Soffer
8th Edition
1260247848, 978-1260247848
