Question 14.4: A firm has a total asset value of 500. The expected rate of ...

Financial Enterprise Risk Management

A firm has a total asset value of 500. The expected rate of growth of this asset value is 10% per annum, whilst its volatility is 30% per annum. If the firm’s total borrowing consists of a fixed repayment of 300 that must be made in exactly one year’s time, what is the probability that the firm will be insolvent at this point?

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