You are working with credit score models to analyze the credit risk of borrowers (business lending). In the context of the Altman Z Score model, which of the statements below is correct?

Group of answer choices

An increase in the ratio of the market value of the equity to the total value of the liabilities (E/L ratio) reduces the risk of default. The reduction in the risk of default predicted by a given increase in the E/L ratio should remain stable across different economic environments.

An increase in the ratio of the market value of the equity to the total value of the liabilities (E/L ratio) increases the risk of default. There is no reason to expect that a given increase in the E/L ratio will predict the same increase in the risk of default after a significant change in the economic environment.

An increase in the ratio of the market value of the equity to the total value of the liabilities (E/L ratio) reduces the risk of default. There is no reason to expect that a given increase in the E/L ratio will predict the same decrease in the risk of default after a significant change in the economic environment.

An increase in the ratio of the market value of the equity to the total value of the liabilities (E/L ratio) increases the risk of default. The increase in the risk of default predicted by a given increase in the E/L ratio should remain stable across different economic environments.