Consider a company described by the following market data: the value of the company's assets is 4.5

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Consider a company described by the following market data:

the value of the company's assets is 4.5 million USD,

the volatility of the assets is 25%.

The debt that has to be paid is in 3 year is 3.5 million USD.

The risk free rate is 2.5% per annum.

Consider a standard Merton's model

d_S(t) = r_S(t)dt + σ_S(t)d_W(t)

On a 3-year horizon, what is the survival probability of the firm? Remember in Merton's model the firm survives if the value of the assets is greater than the value of debt at time T

Related Book For answer-question

Financial Reporting Financial Statement Analysis and Valuation a strategic perspective

ISBN: 978-1337614689

9th edition

Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

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Posted Date: Sep 13, 2023 01:25 AM

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Consider a company described by the following market data: the value of the company's assets is 4.5

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Financial Reporting Financial Statement Analysis and Valuation a strategic perspective

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