Business Credit-Scoring Models Suffer from Several Weaknesses

question 2

Multiple Choice

Business credit-scoring models suffer from several weaknesses. These include which of the following?
I. Credit-score models are not statistically sound tools to use in making a lending decision.
II. The appropriate weights on a credit-score model are likely to change unpredictably over time.
III. These models ignore nonquantifiable behavioral factors,such as a relationship with the bank and reputation.
IV. Credit-scoring models discriminate against minorities.

• A)I and II only
• B)II and III only
• C)II,III,and IV only
• D)I,II,and III only
• E)I,II,III,and IV

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Definitions:

Cash Interest Payment

The actual cash paid by a borrower to a lender or bondholder as compensation for the use of borrowed money, usually at set intervals.

Bond Exchange

The process of trading bonds in the financial market, where investors buy and sell debt securities issued by entities like governments and corporations.

Market Rate of Interest

The prevailing rate of interest observed in the marketplace for loans and investments.

Trading

Buying and selling securities or commodities in financial markets, aiming for short-term profits.