SOLVED:Default probability What variables are required to use a… | Numerade

SOLVED: The estimated linear probability model used by a financial institution to predict business loan applicant default probabilities is given by:PD = 0.03X1 0.02X2 – 0.05X3 errorWhere:X1 is the borrower's debt/equity ratioX2 is the volatility of the borrower's earnings, andX3 is the borrower's profit marginFor prospective borrower A: X1 = 0.75, X2 = 0.25, and X3 = 0.15For prospective borrower B: X1 = 0.70, X2 = 0.30, and X3 = 0.20Calculate the expected probabilities of defaults (PD) for

Using Probability Distributions to Model Uncertainty: A General Decision Making Framework