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 = 0.15 (debt ratio) + 0.05 (profit margin)
A firm you are thinking of lending to has a debt ratio of 50 percent and a profit margin of 8 percent.Calculate the firm's expected probability of default,or bankruptcy.

A) 7.90 percent
B) 11.6 percent
C) 30.00 percent
D) 7.80 percent