Q39

Suppose the estimated linear probability model used by an FI to predict business loan applicant default probabilities is PD = 0.05X1 + 0.01X2 0.09X3 + error, where X1 is the borrowers debt/equity ratio, X2 is the volatility of borrower earnings, and X3 = 0.10 is the borrowers profit ratio. For a particular loan applicant, X1 = 0.75, X2 = 0.25 and X3 = 0.10. What is the projected probability of repayment for the borrower?

Select one:

a.

0.925

b.

0.969

c.

0.915

d.

0.825