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Q39 Suppose the estimated linear probability model used by an FI to predict business loan applicant default probabilities is PD = 0.05X1 + 0.01X2 0.09X3
Q39
Suppose the estimated linear probability model used by an FI to predict business loan applicant default probabilities is PD = 0.05X1 + 0.01X2 0.09X3 + error, where X1 is the borrowers debt/equity ratio, X2 is the volatility of borrower earnings, and X3 = 0.10 is the borrowers profit ratio. For a particular loan applicant, X1 = 0.75, X2 = 0.25 and X3 = 0.10. What is the projected probability of repayment for the borrower?
Select one:
a.
0.925
b.
0.969
c.
0.915
d.
0.825
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