Suppose a Linear Probability Model You Have Developed Finds There

question 20

Multiple Choice

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 = 0.28 (debt ratio) + 0.51 (profit margin)
You know a particular firm has a debt ratio of 46 percent and a probability of default of 18 percent. Calculate the firm's profit margin.

• A) 11.93 percent
• B) 13.27 percent
• C) 10.04 percent
• D) 12.81 percent

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Definitions:

Histogram

A graphical representation of data using bars of different heights where each bar groups numbers into ranges.

Class Size

The number of students enrolled in a particular class or educational setting.

Histogram

A graphical representation of the distribution of numerical data through bars of different heights, which illustrate the frequencies of data within specified intervals.

Class Size

Refers to the number of students enrolled in a particular class or course, often considered in educational discussions regarding learning outcomes.