In Order to Obtain the Probability of Default in the Merton

Multiple Choice

In order to obtain the probability of default in the Merton (1974) model under the real-world probability measure, we need to make the following change in calculating $N \left( d _ { 2 } \right)$ in the formula :

A) Replace $\mu$ (the firm's asset growth rate) with $r$ (the risk-free rate) .
B) Replace $r$ with $\mu$ .
C) Replace $\sigma$ (the firm's asset volatility) with $d _ { 1 } \sqrt { T - t }$ .
D) Replace $d _ { 2 }$ with $\sigma \sqrt { T - t }$ .