What is a common feature of all structural models?
What will be an ideal response?
The common feature for all structural models (e.g., the BSM model and its extensions) is that default can be viewed as some type of option by the equity owners on the assets of the firm, and that the option is triggered (i.e., the corporation defaults) when the value of the corporation's assets declines below a certain default point. The application of option pricing theory avoids the use of a risk premium and tries to use other marketable securities to price the option. The use of option pricing theory provides an improvement over traditional methods for valuing corporate bonds. The outputs of structural models show how the credit risk of a corporate bond is a function of the issuer's leverage and the volatility of the issuer's assets. The output of these models also provides information about how to hedge the default risk, which was not obtainable from traditional methods.
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Which of the following defenses will release a surety from liability?
A. Insanity of the principal debtor at the time the contract was entered into. B. Failure by the creditor to promptly notify the surety of the principal debtor's default. C. Refusal by the creditor, with knowledge of the surety relationship, to accept the principal debtor's unconditional tender of payment in full. D. Release by the creditor of the principal debtor's obligation without the surety's consent but with the creditor's reservation of his rights against the surety.
On December 15, Duncan Services, Inc. collected revenue of $3,000 in advance from a new client, and agreed to provide services to the client for the period of December 15 through January 15 of the following year
Assume that the company records deferred revenues using the alternative treatment, and journalize the adjusting entry recorded on December 31. What will be an ideal response