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
Section: Chapter Questions
Problem 1.1P: a. How many different 7-place license plates are possible if the first 2 places are for letters and...
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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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