XXX Ltd. has banked with Bank of Australia for more than 10 years. XXX Ltd. would like to apply for a $ 10 million loan from the Bank of Australia and provides the following balance sheet report to the bank (in Table 1).  It's estimated that XXX Ltd. will have a growth rate of 15% in the coming year.  The bank is provided the Expected Default Frequency Table from Moody (in Table 2).

   

Suppose that the current market value of assets is $1100 million and its standard deviation is 12%.  What's the Expected Default Frequency of this borrower under the KMV model?

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Balance Sheets As at end of Year Current Assets Current Liabilities Cash Debtors Stock Creditors Hire Purchase Bank Overdraft Directors' Loans Current Tax 2019 $ million 50 150 240 220 50 120 14 1 Balance Sheets As at end of Year Current Assets Current Liabilities Cash Debtors Stock Creditors Hire Purchase Bank Overdraft Directors' Loans Current Tax 2019 $ million 50 150 240 220 50 120 14 1

Answer rating: 100% (QA)

The following formula must be used to determine the borrowers Expected Default Frequency EDF unde... View the full answer