Question
We take into consideration a company, whose equity is 11 million euros.
The company’s debt is equal to 18 million euros and it must be paid in one year.
The risk-free rate on the market is 6% per annum.
The observed instantaneous volatility of equity is 0.7.
What is the probability of default (PD, in percentage but without the % symbol; round off to the 2nd decimal, e.g. 2.33) of the company according to Merton's model?
The company’s debt is equal to 18 million euros and it must be paid in one year.
The risk-free rate on the market is 6% per annum.
The observed instantaneous volatility of equity is 0.7.
What is the probability of default (PD, in percentage but without the % symbol; round off to the 2nd decimal, e.g. 2.33) of the company according to Merton's model?
Answers
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2.33