Use this information for the next 2 questions Suppose the estimated linear probability model used...
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Use this information for the next 2 questions Suppose the estimated linear probability model used by an Fl to predict business loan applicant default probabilities is PD = 0.03X1 + 0.02X2 -0.05X3 + error, where X1 is the borrower's debt/equity ratio, X2 is the volatility of borrower earnings, and X3 is the borrower's profit ratio. For a particular loan applicant, X1 = 0.75, X2 -0.25, and X3 -0.10. What is a major weakness of the linear probability model? Edit View Insert Use this information for the next 2 questions Suppose the estimated linear probability model used by an Fl to predict business loan applicant default probabilities is PD = 0.03X1 + 0.02X2 -0.05X3 + error, where X1 is the borrower's debt/equity ratio, X2 is the volatility of borrower earnings, and X3 is the borrower's profit ratio. For a particular loan applicant, X1 = 0.75, X2 -0.25, and X3 -0.10. What is a major weakness of the linear probability model? Edit View Insert
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