A firm's current value is 1 billion. The firm has one-year zero-coupon debt of face value €0.6 billion. Assume an expected growth rate of the firm's assets of 0% and a standard deviation of asset value of 0.3 billion. If the firm asset value at year end is normally distributed, what is the probability that the firm's assets will not be sufficient to repay the debt at the end of the year?
A) 1.23%
B) 4.11%
C) 7.34%
D) 9.12%

Question

Quizplus · Accepted Answer

The Answer of A firm's current value is 1 billion. The firm has one-year zero-coupon debt of face value €0.6 billion. Assume an expected growth rate of the firm's assets of 0% and a standard deviation of asset value of 0.3 billion. If the firm asset value at year end is normally distributed, what is the probability that the firm's assets will not be sufficient to repay the debt at the end of the year?
A) 1.23%
B) 4.11%
C) 7.34%
D) 9.12%

A Firm's Current Value Is 1 Billion