Hi David,
This Qustion is frm 2008 practice set and i am not able to understand the question itself..what is it asking us to achieve ..pls help
A junior bond with a face value of 200 matures in 5 years. A senior bond on the same firms also matures
in 5 years, and has a face value of 100. Assume -A = .5 and the riskfree rate=.04. Firm value is equal to
400. Using the Merton model, what is the value of the junior bond? (The following table includes figures
that will reduce the time required to answer this but it also includes figures that are irrelevant to the
problem and some that are strictly wrong).
d1 d2 N(d1) N(d2)
1.978 0.860 .9761 .8051
1.978 0.860 .8051 .9761
0.9952 -.1228 .8413 .5478
0.9952 -1.505 .8413 .0661
0.9952 -.1228 .8413 .4522
This Qustion is frm 2008 practice set and i am not able to understand the question itself..what is it asking us to achieve ..pls help
A junior bond with a face value of 200 matures in 5 years. A senior bond on the same firms also matures
in 5 years, and has a face value of 100. Assume -A = .5 and the riskfree rate=.04. Firm value is equal to
400. Using the Merton model, what is the value of the junior bond? (The following table includes figures
that will reduce the time required to answer this but it also includes figures that are irrelevant to the
problem and some that are strictly wrong).
d1 d2 N(d1) N(d2)
1.978 0.860 .9761 .8051
1.978 0.860 .8051 .9761
0.9952 -.1228 .8413 .5478
0.9952 -1.505 .8413 .0661
0.9952 -.1228 .8413 .4522
