The firm has a single outstanding debt issue with a promised maturity payment of $120 in 5

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The firm has a single outstanding debt issue with a promised maturity payment of $120 in 5 years. What is the probability of bankruptcy? What is the credit spread?
Assume that a firm has assets of $100, with σ = 40%, α = 15%, and δ = 0. The risk-free rate is 8%.
Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...
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Derivatives Markets

ISBN: 978-0321543080

4th edition

Authors: Rober L. Macdonald

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