CFA Practice Question

There are 252 practice questions for this study session.

CFA Practice Question

The historical estimation method cannot be used to estimate the inputs to the structure model. This is mainly because:
A. The company's asset value is not observable.
B. It requires the company's equity be actively traded so that a time series of market prices for the company's equity is available.
C. The method implicitly assumes a constant interest rate. This is not realistic.
Explanation: The method requires the company's assets, which include buildings and non-traded investments, to trade in frictionless markets.

Structural models are currently used in practice by commercial banks and credit rating agencies.

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