11-74 Which of the Following Is the Major Weakness of the Linear

question 9

Multiple Choice

11-74 Which of the following is the major weakness of the linear probability model?

• A)Based on market expectations.
• B)Measurement of the loan risk is difficult.
• C)Estimated probabilities of default may lie outside the interval 0 to 1.
• D)Neither the market value of a firm's assets nor the volatility of the firm's assets is directly observed.
• E)Answers A and D only.

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