We use the Moodys KMV model for the measurement of the credit risk of two firms 1 and 2 for which the value of assets and liabilities is the same (hence A1=A2 and L1=L2) Their only difference is that the asset price volatility of firm 1 (1is higher than the asse price volatility of firm 2 (2), Then, according to the Moodys KMV model:

a.the estimated probability of default of firm 1 will be higher than the probability of default of firm 2

B.the estimated probability of default for the 2 firms will be the same

c, the estimated probability of default of firm 1 will be lower than the probability of default of firm 2