3 Suppose we develop model to calculate probability of default such as follows Z 0 2 1 4X1 0 6X2 Z X1 X2 Probability of non default Ratio of working capital total assets Ratio of earning before interest and taxes Total assets Suppose we observe financial numbers for company X and Y as follows X Y Total Assets Rp50 billion Rp100 billion Working Capital Rp5 billion Rp50 billion EBIT Rp30 billion Rp40 billion a If we use linear probability model, calculate probability of non default for X and Y b Evaluate the numbers, does it make sense In what way logit model improve the linear probability model c Calculate probability of non default using logit model for company X and Y 3 Suppose we develop model to calculate probability of default such as follows Z 0 2 1 4X1 0 6X2 Z X1 X2 Probability of non default Ratio of working capital total assets Ratio of earning before interest and taxes Total assets Suppose we observe financial numbers for company X and Y as follows X Y Total Assets Rp50 billion Rp100 billion Working Capital Rp5 billion Rp50 billion EBIT Rp30 billion Rp40 billion a If we use linear probability model, calculate probability of non default for X and Y b Evaluate the numbers, does it make sense In what way logit model improve the linear probability model c Calculate probability of non default using logit model for company X and Y

Question

3  Suppose we develop model to calculate probability of default such as follows Z  0 2   1 4X1   0 6X2   Z X1 X2 Probability of non default Ratio of working capital   total assets Ratio of earning before interest and taxes   Total assets Suppose we observe financial numbers for company X and Y as follows  X Y Total Assets Rp50 billion Rp100 billion Working Capital Rp5 billion Rp50 billion EBIT  Rp30 billion Rp40 billion a  If we use linear probability model, calculate probability of non default for X and Y b  Evaluate the numbers, does it make sense  In what way logit model improve the linear probability model  c  Calculate probability of non default using logit model for company X and Y  3  Suppose we develop model to calculate probability of default such as follows Z  0 2   1 4X1   0 6X2   Z X1 X2 Probability of non default Ratio of working capital   total assets Ratio of earning before interest and taxes   Total assets Suppose we observe financial numbers for company X and Y as follows  X Y Total Assets Rp50 billion Rp100 billion Working Capital Rp5 billion Rp50 billion EBIT  Rp30 billion Rp40 billion a  If we use linear probability model, calculate probability of non default for X and Y b  Evaluate the numbers, does it make sense  In what way logit model improve the linear probability model  c  Calculate probability of non default using logit model for company X and Y

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Question

3. Suppose we develop model to calculate probability of default such as follows Z= 0.2 + 1.4X1 + 0.6X2 = Z X1 X2 Probability of

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