Which of the Following Is the Major Weakness of the Linear

question 29

Multiple Choice

Which of the following is the major weakness of the linear probability model?

• A)The model is based on past data of the borrower.
• B)Measurement of the loan risk is difficult.
• C)Estimated probabilities of default may lie outside the interval 0 to 1.
• D)Neither the market value of a firm's assets nor the volatility of the firm's assets is directly observed.
• E)None of the options is a weakness of the linear probability model.

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Definitions:

Virtue Ethics

Virtue ethics focuses on the moral character of an individual as the key element of ethical thinking, rather than rules about the acts themselves or their consequences.

Consequences

The results or outcomes that naturally follow from a specific action or set of conditions, often used in the context of cause-and-effect relationships.

Actions

Steps or measures taken to achieve a goal, execute a plan, or respond to events.

Code Of Ethics

A set of principles designed to guide the conduct of members within an organization, ensuring professional behavior and decision-making.