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

question 49

Short Answer

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.
Compute the predicted probability of default for a person whose balance ratio is 5% and debt ratio is 30%.

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Definitions:

Drinking

The act of consuming liquids; in the context of alcohol, it refers to the ingestion of alcoholic beverages.

Supported

Having the backing or endorsement from individuals, groups, or evidence, offering assistance or approval.

Chemical Treatments

Processes or procedures that use chemical agents to treat or alter a substance, material, or living tissue, often used in industrial, medical, and healthcare applications.

Disulfiram

A medication used to support the treatment of chronic alcoholism by producing an acute sensitivity to ethanol.