CAS Exam 9 Spring 2013, Question 10
Study guide: Exam 9
Given the following information regarding a firm:
- The current volatility of the firm's assets is 21.8%.
- The notional value of the firm's debt due in three years is $1 billion.
- The risk-free interest rate is 5% per annum.
- The risk-neutral probability of default is 10%.
Using Merton's Model, calculate the current value of the firm's debt.
Part a (2.75 points)
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