Suppose a Linear Probability Model You Have Developed Finds There

question 109

Multiple Choice

Suppose a linear probability model you have developed finds there are two factors influencing the past bankruptcy behavior of firms: the debt ratio and the profit margin. Based on past bankruptcy experience, the linear probability model is estimated as:
PD_i = 0.15 (debt ratio) + 0.05 (profit margin)
A firm you are thinking of lending to has a debt ratio of 50 percent and a profit margin of 8 percent. Calculate the firm's expected probability of default, or bankruptcy.

• A) 7.90 percent
• B) 11.6 percent
• C) 30.00 percent
• D) 7.80 percent

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Definitions:

Inattentional Blindness

The phenomenon of not perceiving a stimulus that might be literally right in front of you unless you are paying attention to it.

Unexpected Event

An occurrence or incident that deviates from the usual or anticipated course, often triggering surprise or requiring adaptation.

Pass-Monitoring Task

A cognitive task that assesses an individual's ability to monitor and judge their own responses or behaviors typically for accuracy or correctness.

Directions

Instructions or guidance on how to reach a destination or how to perform tasks and activities.