Please use the following information for the next two questions: A bank develops the following linear discriminant model of the credit quality (i.e., a higher Z means a better credit quality) based on their own loan database: Z=B1X1+ B2X2 +2.0X3 where X1 is debt to asset ratio (long-term debts/total assets), ✗2 is return on asset (net income/total assets), and X3 is earnings retention ratio (retained earnings/total assets). Based on the estimates of coefficients provided the bank's risk management team, the coefficients of X1 and X2 are either 2 or -1.5. For one of its potential borrower, X₁ = 30%, X2 = 20%, and X3 = 90%. 11. What should be the value of coefficients of X1 and X2, B1 and B2 respectively? = βι B₂ A. 2 -1.5 B. -1.5 2 C. -1.5 -1.5 D. 2 2 E. None of the above Answer: B
Please use the following information for the next two questions: A bank develops the following linear discriminant model of the credit quality (i.e., a higher Z means a better credit quality) based on their own loan database: Z=B1X1+ B2X2 +2.0X3 where X1 is debt to asset ratio (long-term debts/total assets), ✗2 is return on asset (net income/total assets), and X3 is earnings retention ratio (retained earnings/total assets). Based on the estimates of coefficients provided the bank's risk management team, the coefficients of X1 and X2 are either 2 or -1.5. For one of its potential borrower, X₁ = 30%, X2 = 20%, and X3 = 90%. 11. What should be the value of coefficients of X1 and X2, B1 and B2 respectively? = βι B₂ A. 2 -1.5 B. -1.5 2 C. -1.5 -1.5 D. 2 2 E. None of the above Answer: B
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Please use the following information for the next two questions:
A bank develops the following linear discriminant model of the credit quality (i.e., a higher Z
means a better credit quality) based on their own loan database:
Z=B1X1+ B2X2 +2.0X3
where X1 is debt to asset ratio (long-term debts/total assets), ✗2 is return on asset (net
income/total assets), and X3 is earnings retention ratio (retained earnings/total assets). Based on
the estimates of coefficients provided the bank's risk management team, the coefficients of X1
and X2 are either 2 or -1.5. For one of its potential borrower, X₁ = 30%, X2 = 20%, and X3 =
90%.
11. What should be the value of coefficients of X1 and X2, B1 and B2 respectively?
=
βι
B₂
A. 2
-1.5
B. -1.5
2
C. -1.5
-1.5
D. 2
2
E. None of the above
Answer: B
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