Which of the following statements is TRUE?

In the Merton model of credit risk it is assumed that:

a.

The value of default-risky debt is the same as a risk free bond less the value of a call option.

b.

The firm defaults when the market value of assets is less than debt at the maturity of the debt.

c.

The firm defaults when it runs out of liquidity to pay creditors.

d.

The firm can default at anytime prior to maturity of its debt.