# Question: Suppose that there is a 3 per year chance that the

Suppose that there is a 3%per year chance that the firm’s asset value can jump to zero.

Assume that the firm issues 5-year zero-coupon debt with a promised payment of $110. Using the Merton jump model, compute the debt price and yield, and compare to the results you obtain when the jump probability is zero.

Assume that the firm issues 5-year zero-coupon debt with a promised payment of $110. Using the Merton jump model, compute the debt price and yield, and compare to the results you obtain when the jump probability is zero.

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