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Please use the following information for the next two questions: A bank develops the following linear discriminant model of the credit quality ( i .

Please use the following information for the next two questions:
A bank develops the following linear discriminant model of the credit quality (i.e., a higher Z
means a better credit quality) based on their own loan database:
Z=1x1+2x2+2.0x3
where x1 is debt to asset ratio (long-term debts/total assets),x2 is return on asset (net
income/total assets), and x3 is earnings retention ratio (retained earnings/total assets). Based on
the estimates of coefficients provided the bank's risk management team, the coefficients of X1
and X 2 are either 2 or -1.5. For one of its potential borrower, x1=30%,x2=20%, and x3=
90%.
What should be the value of coefficients of X 1 and x2,1 and 2 respectively?
E. None of the above
Answer: B
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