QUESTION 2 ANSWERALL PARTs a. Explain how default occurs for a limited liability company within a structural model. How does the Merton model predict probability of default? (50% question weight) b. The following infomation is given fortwo limited liability companies Company A Company B Asset value Asset volatility Asset drift rate Short-term liabilities Long-term liabilities 60,789 24.7% 4.3% 6,264 24,268 81,765 27.9% 4.1% 27,208 43,586 Calculate the Distance to Default (DtD) for each company and compare the results. Explain the main drivers of DtD based on the information available in the above table. Which company is the most risky? (50% question weight)