What is the suggested credit rating of the firm at a 1-year horizon using the rating schedule provided?
A. AA/A
B. A/BBB+
C. BBB+/BBB-
D. BBB-/BB
Answer:D
What is the suggested credit rating of the firm at a 1-year horizon using the rating schedule provided?
A. AA/A B. A/BBB+ C. BBB+/BBB- D. BBB-/BB
Explanation: D is the correct answer. Using the Merton Model, default value of debt = Short-term + 0.5*Long-