Question: 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

 Suppose a linear probability model you have developed finds there are

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; = 0.34(Debt ratio) - 0.29(Profit margin). A firm you are thinking of lending to has a debt ratio of 58 percent and a profit margin of 5 percent. Calculate the firm's expected probability of default, or bankruptcy. (Round your answer to 2 decimal places.) Probability of default 18.27: %

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