Question
Suppose the estimated linear probability model is PD = 0.3X 1 + 0.2X 2 - .05X 3 + error, where X 1 = 0.75 is
Suppose the estimated linear probability model is PD = 0.3X1 + 0.2X2 - .05X3 + error, where X1 = 0.75 is the borrower's debt/equity ratio; X2 = 0.25 is the volatility of borrower earnings; and X3 = 0.10 is the borrowers profit ratio.
a. What is the projected probability of default for the borrower?
b. What is the projected probability of repayment if the debt/equity ratio is 2.5?
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Options Trading For Beginners
Authors: Mike Hartley
1st Edition
979-8864514832
