in the case of information asymmetry, If the managers know more information than the outsiders , why is it costly for management to raise funds? How is it going to reduce the cost by involving an outside large shareholder in the board ? Can you pls eloborate a bit.
In the credit spread calculation it's mentioned that an increase in interest rates will increase the value of firm and decreases the credit spread
however in the unanticipated change in interest rate section, it's mentioned that an increase in interest rate reduces the value of debt...
Chapter 18. Credit Risks and Credit Derivatives [CR–5]
Using the Merton model, calculate the value of a firm’s debt and equity and the volatility of firm value.
Explain the relationship between credit spreads, time to maturity, and interest rates.
Explain the differences between valuing senior...
Can someone explain why the bank gets paid whether or not the bank defaults or not? They receive $20 million, which is the difference between the value at maturity and the value of the debt at t=0. If the debt defaults, they get $30 million which is the difference betweeen the value...
Learning objectives: Assess methods that banks can use to determine their optimal level of risk exposure, and explain how the optimal level of risk can differ across banks. Describe implications for a bank if it takes too little or too much risk compared to its optimal level.