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Assume assets of firm A are worth $3 mil, and its expected continuously compounded rate...

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Accounting

Assume assets of firm A are worth $3 mil, and its expected continuously compounded rate of return amounts to 22% p.a. while thier volatility is 45%. The face value of the firm's debt is $1.5 mil with a maturity of 5 years. Neither further debt, equity issuance, dividend payments, or share buy-backs are planned. Currently, the credit risk-free interest rate amounts to 4% p.a.

Use the Merton model to calculate the value of debt.

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