Calculation of Bankruptcy Probability Suppose a Linear Probability Model You

Calculation of Bankruptcy Probability Suppose a linear probability model you have developed finds there are two factors influencing the past bankruptcy behavior of firms: the debt ratio and the profit margin.Based on past bankruptcy experience,the linear probability model is estimated as:
PD_i = 0.20 (debt ratio) + 0.15 (profit margin)
A firm you are thinking of lending to has a debt ratio of 55 percent and a profit margin of 10 percent.Calculate the firm's expected probability of default,or bankruptcy.

A) 12.5 percent
B) 10.0 percent
C) 1.65 percent
D) 10.25 percent