How Can Discriminant Analysis Be Used to Make Credit Decisions

question 71

Multiple Choice

How can discriminant analysis be used to make credit decisions?

• A)By discriminating between good and bad borrowers.
• B)By using statistical analysis to predict the default probabilities.
• C)By using statistical analysis to isolate and weight factors to arrive at default risk classification of a commercial borrower.
• D)By using statistical analysis to bypass qualitative credit decision making.
• E)By updating FI bankruptcy experiences.

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Definitions:

Process Innovation

The implementation of a new or significantly improved production or delivery method.

Total Product Curve

A graph showing the relationship between the quantity of input used and the quantity of output produced.

Marginal Cost Curve

A graphical representation showing how the cost of producing one additional unit of a good varies as the production volume changes.

Marginal Utility

The additional satisfaction or utility that a person receives from consuming an additional unit of a good or service.