I think I just saw the difference. In the second term in the numerator, the risk free rate has one half the variance of assets subtracted from it to calc d2. In d1 that same term is added to the risk free rate.
Nevertheless, some instruction on when to use which would be helpful. Thanks.
I know it is getting a little late to ask these questions. However, I am confused about the formula for d1 vs d2.
In the spreadsheet solution provide for Option pricing model to solve for value of debt & equity, the formula for d1 was given as below (bolded).
Face value of debt $10.000
David, in the answer given in Q19.2 of the GARP Practice Exam Questions, it makes reference to the Variance of EDF being the square root of p*(1-p) and provides a link to Wikipedia: http://en.wikipedia.org/wiki/Bernoulli_distribution.
19.2 Assume both credits (credit A & credit B) have the...