10. Predicting default probability (S24.3) A friend has mentioned that she has read somewhere that the following variables can be used to predict bankruptcy:

(a) the company debt ratio;

(b) the interest coverage;

(c) the amount of cash relative to sales or assets;

(d) the return on assets;

(e) the market-to-book ratio;

(f) the recent return on the stock; (g) the volatility of the stock returns. The problem is that she can’t remember whether a high value of each variable implies a high or a low probability of bankruptcy. Can you help her out?