Question: Using a linear probability model that uses the following formula: PD1 = 0.6 (Debt/Equity) 0.12 (Sales/Total Assets), calculate the percentage chance of bankruptcy/default of a

Using a linear probability model that uses the following formula: PD1 = 0.6 (Debt/Equity) 0.12 (Sales/Total Assets), calculate the percentage chance of bankruptcy/default of a firm you're thinking of investing in that has a debt-to-equity ratio of 25 percent and a sales-to-assets ratio of 1.1.

A. 1.2 percent B. 3.0 percent C. 4.3 percent D. 1.8 percent

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