Question: . (20 pts) Credit risk measures using the structural model: assume a company has the following characteristics. Time t value of the firms asset: At

. (20 pts) Credit risk measures using the structural model: assume a company has the following characteristics.

Time t value of the firms asset: At = $2,400

Expected return on assets: u = 0.050 per year

Risk-free rate: r = 0.025 per year

Face value of the firms debt: K = $1,800

Time to maturity of the debt (tenor): T t = 0.5 year

Asset return volatility: = 0.300 per year

(a) Calculate the probability that the debt will default over the time to maturity.

(b) Calculate the expected loss.

(c) Calculate the present value of the expected loss.

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