The purpose of this study is to present an appropriate pricing model for speculative-grade bonds in Korea. This model, which is based on Merton (1974), focuses on estimating unobservable parameters, specifically, the firm value and the volatility of the firm value return. In this analysis, I chose two methods to acquire the unobservable parameters. One method uses non-linear simultaneous equations to find the firm value and the volatility of the firm value return. The other method uses iterative technique to come up with the two unobservable parameters. By applying the second method of using the iterative technique, I was able to find the yields that were consistent with market principle. Nonetheless, the model yield obtained through the second method is significantly different from an actual yield.