Integrated Mini Case for Chapter $10$: Loan Analysis As a senior loan officer at MC Bancorp, you have the following loan applications waiting for review. The bank uses Altman$$s Z score, default probabilities, mortality rates, and RAROC to assess loan acceptability. The bank$$s cost of equity $($the RAROC benchmark$)$ is $8$ percent. The bank$$s loan policy states thatWhich of the following loans should be approved and which rejected? the maximum probability of default for loans by type is as follows:Which of the following loans should be approved and which rejected $"1.$ An AAA$-$rated, one$-$year C&I loan to a firm with a liquidity ratio of $2\mathrm{.}25,$ a debt$-$to$-$asset ratio of $55$ percent, volatility in earnings of $0\mathrm{.}12,$ and a profit margin of $11$ percent. MAC Bancorp uses a linear probability model to evaluate AAA$-$rated loans as

follows:

PD $=-0\mathrm{.}08$ X$1+0\mathrm{.}15$ X$2+1\mathrm{.}25$ X$30\mathrm{.}45$ X$4$

where X$1=$ Liquidity ratio

X$2=$ Debt$-$to$-$asset ratio

X$3=$ Volatility in earnings

X$4=$ Profit margin"?