Module 4 part 1 Short Answer/Calculation (2 Marks) As a credit officer for a small...
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Module 4 part 1 Short Answer/Calculation (2 Marks) As a credit officer for a small bank, you have developed a linear probability model to analyse past default patterns in the small business loan portfolio. You have determined the following relationship: 1-PD, = 0.15% ROE+0.3 x ROA +0.25x Net Profit Margin +0.15x Asset Util +0.2 x Current Ratio 1 Small Business 1 and Small Business 2 have the following ratios: Ratio Business 1 Business 2 ROE 0.27 0.3 ROA 0.24 0.25 Net Profit Margin 0.2 0.22 Asset Utilisation 1.4 1.6 Current Ratio 2.2 1.8 1-PD a) Populate the table by calculating 1-PD for each business (1 Mark) (Copy and paste the table into the answer panel) b) Which small business would you prefer to extend loan funds to? Why? (1 Mark)
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