Exam 30: Structural Models of Default Risk

A firm's current value is 1 billion. The firm has one-year zero-coupon debt of face value €0.6 billion. Assume an expected growth rate of the firm's assets of 0% and a standard deviation of asset value of 0.3 billion. If the firm asset value at year end is normally distributed, what is the probability that the firm's assets will not be sufficient to repay the debt at the end of the year?

(Multiple Choice)

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Question 21

Credit spreads in the Merton (1974) model will be increasing, ceteris paribus, when

(Multiple Choice)

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Question 22

A firm has one-year zero-coupon debt with face value $7 billion. Assuming the firm value at the end of the year is normally distributed with a mean of 10 billion and a standard deviation of 2 billion, , what is the probability that the firm's assets will not be sufficient to repay the debt at the end of the year?

(Multiple Choice)

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Question 23

In Altman's Z-score model, which of the following variables has a negative coefficient in the discriminant function that comes out of the model? (A negative coefficient would mean that the Z-score is decreasing in the variables.)

(Multiple Choice)

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Question 24

Equity and debt in a firm are option-like. Which of the following options are they?

(Multiple Choice)

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Question 25

Equity holders in a leveraged firm have

(Multiple Choice)

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Question 26

Showing 21 - 26 of 26

Credit spreads in the Merton (1974) model will be increasing, ceteris paribus, when

In Altman's Z-score model, which of the following variables has a negative coefficient in the discriminant function that comes out of the model? (A negative coefficient would mean that the Z-score is decreasing in the variables.)

Equity and debt in a firm are option-like. Which of the following options are they?

Equity holders in a leveraged firm have

Overview

Futures Markets

Pricing Forwards and Futures I

Pricing Forwards Futures II

Hedging With Futures Forwards

Interest-Rate Forwards Futures

Options Markets

Options: Payoffs Trading Strategies

No-Arbitrage Restrictions

Early-Exercise Put-Call Parity

Option Pricing: an Introduction

Binomial Option Pricing

Implementing the Binomial Model

The Black-Scholes Model

Mathematics of Black-Scholes

Beyond Black-Scholes

The Option Greeks

Path-Independent Exotic Options

Exotic Options II: Path-Dependent Options

Value at Risk

Swaps and Floating Rate Products

Equity Swaps

Currency and Commodity Swaps

Term Structure of Interest Rates: Concepts

Estimating the Yield Curve

Modeling Term Structure Movements

Factor Models of the Term Structure

The Heath-Jarrow-Morton HJM and Libor Market Model LMM

Credit Derivative Products

Reduced-Form Models of Default Risk

Modeling Correlated Default

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