Question
The company you work for has developed a new credit scoring model to be used to make acceptance and pricing decisions for all of their
The company you work for has developed a new credit scoring model to be used to make acceptance and pricing decisions for all of their loan applicants.
The credit score (S) is calculated as:
S = 5 5*(D/A) 2*LTV + 0.5(Income/10,000) + 1.5*(if Revenue Insurance = yes)
where: D/A = debt-to-asset ratio
LTV = loan-to-value (loan amount/value of project)
Revenue Insurance = 1 if the applicant has revenue insurance, 0 otherwise
You accept the loan if S > 5.
If the loan is accepted, you offer the following interest rate (r):
r = Prime Rate + (7 S)%.
The current Prime Rate = 6.5%.
Given the credit scoring model outlined above, would you accept the following loan application, and if so at what interest rate?
Applicant Name | John Smith |
D/A | 0.5 |
Income | 80,000 |
Loan Amount | 90,000 |
Value of Project | 120,000 |
Revenue Insurance? | Yes |
LTV |
|
S |
|
Accept or reject loan? |
|
r |
|
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