Estimate the expected loss from default

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Reference no: EM131239791

The value of a company's equity is $4 million and the volatility of its equity is 60%. The debt that will have to be repaid in 2 years is $15 million. The risk-free interest rate is 6% per annum.

Use Merton's model to estimate the expected loss from default, the probability of default, and the recovery rate in the event of default.

(Hint: The Solver function in Excel can be used for this question, as indicated in footnote 10.)

Reference no: EM131239791

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