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: PD; = 0.15 (Debt ratio) - 0.10 (Profit margin) A firm you are thinking of lending to has a debt ratio of 45 percent and a profit margin of 6 percent. Calculate the firm's expected probability of default, or bankruptcy. (Round your answer to 2 decimal places.) 0.0595 ✪ % Probability of default
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: PD; = 0.15 (Debt ratio) - 0.10 (Profit margin) A firm you are thinking of lending to has a debt ratio of 45 percent and a profit margin of 6 percent. Calculate the firm's expected probability of default, or bankruptcy. (Round your answer to 2 decimal places.) 0.0595 ✪ % Probability of default
A First Course in Probability (10th Edition)
10th Edition
ISBN:9780134753119
Author:Sheldon Ross
Publisher:Sheldon Ross
Chapter1: Combinatorial Analysis
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![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:
PD; = 0.15 (Debt ratio) - 0.10 (Profit margin)
A firm you are thinking of lending to has a debt ratio of 45 percent and a profit margin of
6 percent. Calculate the firm's expected probability of default, or bankruptcy. (Round
your answer to 2 decimal places.)
0.0595 ✪ %
Probability of
default](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F9dbe3aca-3bf2-4221-bb74-64e96a02685e%2F6a4a07d6-dfbd-4093-b6e1-e18928fe8fc0%2Fbg2j6lq_processed.png&w=3840&q=75)
Transcribed Image Text: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:
PD; = 0.15 (Debt ratio) - 0.10 (Profit margin)
A firm you are thinking of lending to has a debt ratio of 45 percent and a profit margin of
6 percent. Calculate the firm's expected probability of default, or bankruptcy. (Round
your answer to 2 decimal places.)
0.0595 ✪ %
Probability of
default
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