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?
1 answer
2.33