Question: Calculation of Bankruptcy Probability Suppose a linear probability model you have developed finds there are two factors influencing the past bankruptcy behavior of firms: the

Calculation of Bankruptcy Probability Suppose a linear probability model you have

Calculation of Bankruptcy Probability Suppose a linear probability model you have developed finds there are two factors influencing the past bankruptcy behavior of firms: the debt ratio and the profit margin. Based on past bankruptcy experience, the linear probability model is estimated as: PD; = 2 (debt ratio) + 15 (profit margin) a firm you are thinking of lending to has a debt ratio of 56.8 percent and a profit margin of 14.50 percent. Calculate the firm's expected probability of default, or bankruptcy

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