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:

Laboratory

is a controlled setting designed for scientific experiments, research, and testing.

Field Experiment

An experiment conducted in a natural setting rather than a controlled environment to test hypotheses in real-world conditions.

Survey

A method of gathering information from a sample of individuals, typically involving questionnaires or interviews.

Naturalistic Observation

A research method where subjects are observed in their natural environment without any manipulation or intervention by the researcher.