Given a Firm Value Of $V = 100$ , Debt Face Value Of

question 10

Multiple Choice

Given a firm value of $V = 100$ , debt face value of $D = 60$ , asset volatility of $\sigma = 30 \%$ , and a risk free rate of $r = 3 \%$ , conditional on default, the expected recovery rate in the Merton model for debt of maturity five years will be:

• A) 40%
• B) 50%
• C) 60%
• D) 70%

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