hi, according to chapter12 page 24, if we use those 2 simultaneous equations and know thevalue of equity at time 0 (Eo) and standard derivation of equity price, then we can determine the value of the company asset at time 0 (Vo) and the standard derivation of the value of company asset. I hope you can give me some idea about how to solve Vo and the standard derivaton of V0 Suppose Eo is 3 millian, the standard derivation of Eo is 80%, the value of debt to be repaid in 1 year time is 10 millian, riskfree rate is 5%, what is Vo and its standard derivation? I have no idea about how to find them....because I solve eliminate "alpha d2" I would be much appeciated if you could write down few steps for me Or...it is impossible to calculate? I put those 2 equations below here
I can't see these equations on the page you've mentioned, but it looks like you're referring to the Merton model. The simultaneous equations that arise here are not LINEAR equations, so usually you will have to use a numerical method (eg trial and error!) to solve them.
