Suppose That a Firm's Value $V$ Grows Over One Year at a Simple Rate

question 9

Multiple Choice

Suppose that a firm's value $V$ grows over one year at a simple rate $^{\circ}_{R}$ that has a mean of $0.10$ and a variance of $0.04$ .If the firm's current value is $10 billion and it has one-year zero-coupon debt of face value $7 billion,what is the probability that the firm's assets will not be sufficient to repay the debt at the end of the year? Assume the firm value at the end of the year is normally distributed.

• A)1.15%
• B)2.28%
• C)3.39%
• D)5.12%

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