A Linear Probability Model You Have Developed Finds There Are

question 119

Multiple Choice

A linear probability model you have developed finds there are two factors influencing the past bankruptcy behavior of firms: the debt-to-equity ratio and the sales-to-total assets ratio. Based on past bankruptcy experience, the linear probability model is estimated as:
PD_i = 0.45 (debt/equity) + 0.01 (sales/total assets)
A firm you are thinking of lending to has a sales-to-assets ratio of 1.9 and its expected probability of default, or bankruptcy, is estimated to be 7 percent. Calculate the firm's debt-to-assets ratio.

• A) 11.33 percent
• B) 10.18 percent
• C) 89.82 percent
• D) 7.00 percent

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Rewards

Benefits or positive feedback given for a specific behavior, encouraging repetition of such behavior.

Remarriage

The act of marrying someone again after being divorced or widowed from a previous spouse.

Stepparenting

The role or act of being a stepparent, which involves parenting a spouse's child(ren) from a previous relationship, without being their biological parent.

Age

A measure of the time an individual has existed from birth, often used to reference growing older and the associated physiological and mental developments or declinations.