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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 ie a higher Z
means a better credit quality based on their own loan database:
where is debt to asset ratio longterm debtstotal assets is return on asset net
incometotal assets and is earnings retention ratio retained earningstotal assets Based on
the estimates of coefficients provided the bank's risk management team, the coefficients of X
and X are either or For one of its potential borrower, and
What should be the value of coefficients of X and and respectively?
E None of the above
Answer: B
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