An obstacle in implementation of the Merton model is that
A) The model assumes simple capital structures while capital structures in practice are complex.
B) The volatility of firm asset value is unobserved.
C) Both (a) and (b).
D) Neither (a) nor (b).

Question

Quizplus · Accepted Answer

The Merton model assumes simple capital structures while capital structures in practice are complex. Also, the volatility of firm asset value is unobserved, making it difficult to accurately estimate the model's inputs.

An Obstacle in Implementation of the Merton Model Is That