A Bank Manager Is Interested in Assigning a Rating to the Holders

question 60

Essay

A bank manager is interested in assigning a rating to the holders of credit cards issued by her bank. The rating is based on the probability of defaulting on credit cards and is as follows. To estimate this probability, she decided to use the logit model
P = , where
y = a binary response variable which is 1 if the credit card is in default and 0 otherwise
x₁ = the ratio of the credit card balance to the credit card limit (in %)
x₂ = the ratio of the total debt to the annual income (in %)
The following output is obtained. Note: The p-values of the corresponding tests are shown in parentheses below the estimated coefficients.
What is the estimated logit model?

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Definitions:

Total Revenue

The overall income generated by a firm or entity from its sales or services before any costs or expenses are subtracted.

Price-elasticity Coefficient

A numerical measurement of the responsiveness of the quantity demanded or supplied of a product to a change in its price.

Sales Quantity

The cumulative amount of a product or service's units that are purchased over a specified time frame.

Price Increase

A rise in the cost of goods or services.