distress - 13 $0.00 $0.00 $0.00 14 $0.00 $0.00 $0.00 15...

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Inputs To estimate the probability of distress Coupon Rate = 12.00% 1. Open solver (from tools) Maturity of bond= 8 2. Set the value equal to the market price of bond Riskfree rate = 5.00% 3. Solve for the probability of distress Market price of bond= $653.00 Year Cash Flow Present Value 1 $120.00 $103.76 $98.82 2 $120.00 $89.72 $81.38 3 $120.00 $77.58 $67.02 4 $120.00 $67.08 $55.19 5 $120.00 $58.01 $45.45 6 $120.00 $50.16 $37.43 7 $120.00 $43.37 $30.82 8 $1,120.00 $350.00 $236.90 9 $0.00 $0.00 $0.00 10 $0.00 $0.00 $0.00 11 $0.00 $0.00 $0.00 12 $0.00 $0.00 $0.00
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Unformatted text preview: 13 $0.00 $0.00 $0.00 14 $0.00 $0.00 $0.00 15 $0.00 $0.00 $0.00 16 $0.00 $0.00 $0.00 17 $0.00 $0.00 $0.00 18 $0.00 $0.00 $0.00 19 $0.00 $0.00 $0.00 20 $0.00 $0.00 $0.00 21 $0.00 $0.00 $0.00 22 $0.00 $0.00 $0.00 23 $0.00 $0.00 $0.00 24 $0.00 $0.00 $0.00 25 $0.00 $0.00 $0.00 $0.00 Value of bond = $653.00 Probability of distress (Annual) = 13.53% Probability of distress over 5 years = 51.66% Probability of distress over 10 years = 76.63% CF (1- )...
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This note was uploaded on 01/29/2012 for the course FIN 6000 taught by Professor Banko during the Fall '11 term at University of Florida.

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