Calculation of Bankruptcy Probability 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 = .2 (debt ratio) + .15 (profit margin) a firm you are thinking of lending to has a debt ratio of 55.4 percent and a profit margin of 11.00 percent. Calculate the firm's expected probability of default, or bankruptcy.

The choices are A. 12.73% B. 1.66% C. 10.51% D. 11.00%