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

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%