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:

Worth Or Importance

The perceived value or significance of something, often determining the attention and resources it receives.

Corporate Culture

Corporate culture refers to the beliefs, behaviors, and values that a company's employees share.

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A belief that one controls their own destiny and outcomes are the result of personal efforts.

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The self you assume others see when they look at you.