Compute the distance to default and the probability of, Financial Management

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Compute the distance to default and the probability of

A firm has a $1,400,000 loan that matures in one year. The market value of its assets is $2,000,000 and the standard deviation in the rate of change in the value of assets is 25%. The risk-free rate is 5%

(a) Compute the distance to default and the probability of default based on the KMV approach

(b) Compute the current market value and required yield for the loan based on the Merton model.

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