Suppose a Linear Probability Model You Have Developed Finds There

question 93

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 = 0.20 (debt ratio) + 0.50 (profit margin)
You know a particular firm has a debt ratio of 60 percent and a probability of default of 15 percent. Calculate the firm's profit margin.

• A) 6.00 percent
• B) 12.00 percent
• C) 19.50 percent
• D) 15.00 percent

---

Definitions:

Business Cycle

The natural fluctuation of the economy between periods of expansion (growth) and contraction (recession), often influenced by government policy.

Macroeconomic Policy

involves government actions aimed at influencing the overall economic performance of a country, including policies on inflation, unemployment, and economic growth.

Personal Responsibility

The idea that individuals are responsible for their own actions and decisions, and must accept the consequences that come with them.

Work Opportunity Act

Legislation aimed at increasing job opportunities and ensuring workforce development by providing funding and support for employment training and education programs.