Answered step by step
Verified Expert Solution
Question
1 Approved Answer
please make final answer clear! thank you Suppose there were two factors influencing the past default behavior of borrowers: the leverage or debt-assets ratio (D/A)
please make final answer clear! thank you
Suppose there were two factors influencing the past default behavior of borrowers: the leverage or debt-assets ratio (D/A) and the profit margin ratio (PM). Based on past default (repayment) experience, the linear probability model is estimated as: PDi=0.105(D/A)i0.35(PM)i Prospective borrower A has a D/A=0.65 and a PM=5%, and prospective borrower B has a D/A= 0.45 and PM=1% Calculate the prospective borrowers' expected probabilities of default (PDi). PD(A)=5.075%;PD(B)=5.075%PD(A)=5.075%;PD(B)=4.375%PD(A)=4.375%;PD(B)=4.375%PD(A)=4.375%;PD(B)=5.075% Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started