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: PDi = .15 (debt ratio) + .1 (profit margin)
A firm you are thinking of lending to has a debt ratio of 57 percent and a profit margin of 7.15 percent. Calculate the firm's expected probability of default, or bankruptcy.
A) 9.27%
B) 8.49%
C) 7.83%
D) 6.91%
Correct Answer:
Verified
Correct Answer:
Verified
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