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Exercise #4 - Credit Scoring - Linear Probability Modeling Suppose you are using the following model that considers three factors that influenced past default behavior.

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Exercise #4 - Credit Scoring - Linear Probability Modeling Suppose you are using the following model that considers three factors that influenced past default behavior. Further assume they are weighted based on importance. What is the probability of default? PD=0.3X1 + 0.2X2 - 05X3 + error I Where: X1.- Debt/Equity Ratio 0.75 X2 = Volatility of earnings 0.25 X3 = Profit Ratio 0.10

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