11-79 Which of the Following Is a Problem in Using

question 69

Multiple Choice

11-79 Which of the following is a problem in using discriminant analysis to evaluate credit risk?

• A)It does not consider gradations of default.
• B)The weights in the discriminant function are assumed to be dynamic.
• C)It can include hard-to-quantify factors.
• D)Data on loan specific information of banks are readily available.
• E)It does not assume that variables are independent of one another.

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Definitions:

Contribution Margin

The amount of revenue remaining after deducting variable costs, used to cover fixed costs and generate profit.

Variable Expenses

Costs that change in proportion to the level of production or sales activity.

Contribution Margin Ratio

A financial measure that gauges the proportion of sales revenue that exceeds variable costs, indicating how much revenue contributes towards covering fixed expenses and generating profit.

Variable Expenses

Costs that change in direct relation to changes in business activity levels, such as production or sales volume.