With these inputs and a riskless rate of 6 we obtain the

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You are valuing the equity in a firm with $800 million (face value) in debt with an average duration of 6 years and assets with an estimated value of $400 million. The standard deviation in asset value is 30%. With these inputs (and a riskless rate of 6%) we obtain the following values (approximately) for d1 and d2. d1 = - 0.15 d2 = - 0.90 Estimate the default spread (over and above the riskfree rate) that you would charge for the debt in this firm.

Reference no: EM13575048

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