A Linear Probability Model You Have Developed Finds There Are

question 80

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: PDi = .52 (debt/equity) + .01 (sales/total assets)
A firm you are thinking of lending to has a sales-to-assets ratio of 2.0 and its expected probability of default, or bankruptcy, is estimated to be 12 percent. Calculate the firm's debt ratio.

• A) 14.03%
• B) 14.92%
• C) 15.49%
• D) 15.97%

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Definitions:

Conversational Tones

Conversational tones are relaxed and informal styles of communication that mimic everyday spoken language, often used to make written content more engaging and accessible.

Rising Inflection

An increase in pitch or tone of the voice towards the end of a sentence, often indicating a question or increasing emphasis.

Singsong Pattern

A fluctuating, musical way of speaking that can be rhythmic or repetitive, often used for effect or to capture attention.

Affiliation

The association or connection of an individual or organization with another, typically reflecting a relationship of cooperation or membership.