A Linear Probability Model You Have Developed Finds There Are

question 114

Multiple Choice

A linear probability model you have developed finds there are two factors influencing the past bankruptcy behavior of firms: the equity multiplier and the total asset turnover ratio. Based on past bankruptcy experience, the linear probability model is estimated as:
PD_i = 0.05 (equity multiplier) + 0.02 (total asset turnover)
A firm has an equity multiplier of 1.9 times and a probability of default of 10 percent. Calculate the firm's total asset turnover ratio.

• A) 0.25
• B) 25
• C) 2.5
• D) 0.75

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Definitions:

University Students

Individuals enrolled in an institution of higher education to pursue various academic degrees.

Low Income Housing

Affordable housing targeted towards individuals or families with low household income.

P-value

A statistical measure that indicates the probability of the observed data given the null hypothesis is true, used to determine significance.

Sampling Variation

The variation in statistics (like mean, median) from one sample to another taken from the same population, attributable to the random nature of sampling.