A Firm's Current Value Is £ 1 Billion

question 7

Multiple Choice

A firm's current value is £ 1 billion . The firm has one-year zero-coupon debt outstanding with a face value of £ 0.6 billion. What is the one-year "distance to default" (in the Moody's KMV approach) if the standard deviation of firm value is 30%?

• A) 1.33
• B) 1.71
• C) 2.34
• D) 3.12

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