What is the survival probability of the firm

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Reference no: EM131938940

Consider a company described by the following market data: the value of the company’s assets is 100 million USD and the volatility of the assets is 40%. The debt have to be paid is in 1 year and it is equal to 50 million USD. The risk free rate is 2% per annum. Consider a standard Merton’s model dS(t) = rS(t)dt + σS(t)dW(t) On a 1-year horizon, what is the survival probability of the firm?

Reference no: EM131938940

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