Calculation of Bankruptcy Probability Suppose a Linear Probability Model You

question 9

Multiple Choice

Calculation of Bankruptcy Probability 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 = .18 (debt ratio) + .35 (profit margin)
You know a particular firm has a debt ratio of 35 percent and a probability of default of 8 percent. Calculate the firm's profit margin.

• A) 4.857%
• B) 8.163%
• C) 6.53%
• D) 8.00%

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A large-scale government survey conducted to collect a wide range of health-related data from the U.S. population.

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