Company A's equity is $4 million, and the volatility of its equity is 60%. The debt that will have to be repaid in 1 year is $15 million. The value of its assets is $17.08 million, the volatility of the assets is 0.1576, and the risk-free rate is 6%. What is the distance to default (DD)? 0.7139 0.3019 1.1259 0.9456

Company A's equity is $4 million, and the volatility of its equity is 60%. The debt that will have to be repaid in 1 year is $15 million. The value of its assets is $17.08 million, the volatility of the assets is 0.1576, and the risk-free rate is 6%. What is the distance to default (DD)? 0.7139 0.3019 1.1259 0.9456

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter16: Capital Structure Decisions

Section: Chapter Questions

Problem 10MC: Suppose there is a large probability that L will default on its debt. For the purpose of this...

See similar textbooks

Similar questions

Assume assets of your company amount to 5256€ and show volatility at the level of 26.93%. The face value of debt is 2378€ and has a maturity of 4 years. If the assets rate of return is 18.21%, what distance to default do the assets of your company show? Please insert the value as a real number with the decimals of 2 digits.
A firm's assets are currently valued at $700.9 million, its current liabilities are $ 120 million, and long-term -liabilities are $300 million . the standard deviation of expected asset value $76 million . assume the firm has no other debt and that the ratio of long-term -liabilities -to-short- term -liabilities is less than 1.5, what will be the appropriate distance to default measure when utilizing Moody's KMV credit Monitor * ? model standard deviations 5.66 standard deviations 9.21 standard deviations 3.68 standard deviations 1.87
Onyx Corporation has a S200, 000 loan that will mature in one year. The riskfree interest rate is 6 percent. The standard deviation in the rate of changein the underlying asset's value is 12 percent, and the leverage ratio for Onyxis 0.8 (80 percent) . The value for N(hl) is 0.02743, and the value for N(h2)is 0.96406. What is the current market value of the loan?
Qq.61. Subject :- Finance
4. Suppose a firm with a value of $60 million has a bond outstanding with a face value of $50 million that matures in 2 years. the current interest rate is 6% and the volatility of the firm is 25% what is the probability that the firm will default on its debt if the expected return on the firm, µ, is 30% ?what is the expected loss given default?
D3) The value of a derivative that pays off $100 after one year if a company has defaulted during the year is $5. The value of a derivative that pays off $100 after one year if a company has not defaulted is $97. (a) What is the risk-free rate? (b) What is the risk-neutral probability of default?
The risk-free rate on long-term Treasury bonds is 6.04%. Assume thatthe market risk premium is 5%. What is the required return on the market? Now use the SML equation to calculate the two companies’ requiredreturns.
A financial institution uses a loan base rate of 4.35% and sets the credit risk premium at 6.68%. The institution charges a 1.5% loan origination fee and imposes 3.22% compensating balances. The required reserves for this institution are 10%. Additionally suppose your institution specifies the following linear probability model to estimate the probability of default: PD=80-8₁ Wealth - B₂Credit Score + B3 Number of Bankruptcies Bo= 10, 109.5 8₁0.10 B₂ = 0.20 B3 = 0.60 Use the information above to answer the question. What is the gross rate of return on the loan? O 9.31% O 11.03% O 12.53% 12.90%
A company's 5-year bonds are yielding 10% per year. Treasury bonds with the same maturity are yielding 3.9% per year, and the real risk-free rate (r*) is 2.15%. The average inflation premium is 1.35%, and the maturity risk premium is estimated to be 0.1 × (t - 1)%, where t = number of years to maturity. If the liquidity premium is 0.9%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places. %
F1. Subject :- Finance
The real risk-free rate, r*, is 1.7%. Inflation is expected toaverage 1.5% a year for the next 4 years, after which time inflation is expected to average4.8% a year. Assume that there is no maturity risk premium. An 11-year corporatebond has a yield of 8.7%, which includes a liquidity premium of 0.3%. What is itsdefault risk premium?
A firm issues a one-year bond with face value 1000 at time T and the firm’s assets value is 1,500 and the volatility of the firm’s assets is 0.3. What is the distance to default of this firm in KMV model? What is the probability of default?