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# 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-π )...
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