How Can Discriminant Analysis Be Used to Make Credit Decisions

question 71

Multiple Choice

How can discriminant analysis be used to make credit decisions?

• A)By discriminating between good and bad borrowers.
• B)By using statistical analysis to predict the default probabilities.
• C)By using statistical analysis to isolate and weight factors to arrive at default risk classification of a commercial borrower.
• D)By using statistical analysis to bypass qualitative credit decision making.
• E)By updating FI bankruptcy experiences.

---

Definitions:

Fixed Costs

Expenses that do not change with the level of production or sales, such as rent or salaries.

Factory Overhead Cost Budget

An estimate of expected factory overhead costs for a specific period, used for planning and controlling manufacturing expenses.

Total Variable Cost

The sum of all costs that vary directly with the level of production, including materials, labor, and other expenses that increase with greater output.

Fixed Costs

Costs that remain constant regardless of the amount of goods produced or sold, including expenses like leases, wages, and insurance coverage.