Financial institutions utilize prediction models to predict bankruptcy. One such model is the Altman Z- score model, which multiple corporate income and balance sheet values to measures the financial health of a company. If the model predicts a low Z- score value, the firm is in financial stress and is predicated to go bankrupt within the next two years. If the model predicts a moderate or high Z-score value, the firm is financially healthy and is predicated to be a nonbankrupt firm. The alternative hypothesis is that the firm is predicted to be a bankrupt firm.
a. Explain the risks associated with committing a Type I error in this case.
b. Explain the risks associate with committing a Type II error in this case.
c. Which type of error do you think executive want to avoid? Explain.
d. How would changes in the model affect the probabilities of committing Type I and Type II errors?
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Basic Business Statistics, Student Value Edition
- A survey of 131 investment managers in Barron’s Big Money poll revealed the following:● 43% of managers classified themselves as bullish or very bullish on the stockmarket.● The average expected return over the next 12 months for equities was 11.2%.● 21% selected health care as the sector most likely to lead the market in thenext 12 months.● When asked to estimate how long it would take for technology and telecom stocksto resume sustainable growth, the managers’ average response was 2.5 years.a. Cite two descriptive statistics.b. Make an inference about the population of all investment managers concerning theaverage return expected on equities over the next 12 months.c. Make an inference about the length of time it will take for technology and telecomstocks to resume sustainable growth.arrow_forwardPursuing an MBA is a major personal investment. Tuition and expenses associated with business school programs are costly, but the high costs come with hopes of career advancement and high salaries. A prospective MBA student would like to examine the factors that impact starting salary upon graduation and decides to develop a model that uses program per-year tuition as a predictor of starting salary. Data were collected for 37 full-time MBA programs offered at private universities. The data are stored in the accompanying table. b. Assuming a linear relationship, use the least-squares method to determine the regression coefficients b0 and b1. (Round the value of b0 to the nearest integer as needed. Round the value of b1 to two decimal places as needed.) c. Interpret the meaning of the slope, b1, in this problem. Select the correct choice below and fill in the answer box to complete your choice. (Round to the nearest dollar as needed.)arrow_forwardA survey of 131 investment managers in Barron’s Big Money poll revealed the following:● 43% of managers classified themselves as bullish or very bullish on the stockmarket.● The average expected return over the next 12 months for equities was 11.2%.● 21% selected health care as the sector most likely to lead the market in thenext 12 months.● When asked to estimate how long it would take for technology and telecom stocksto resume sustainable growth, the managers’ average response was 2.5 years.a. Cite two descriptive statistics.arrow_forward
- Financial analysts have developed models based on financial ratios that predict whether or not a company will go bankrupt within the next year. In a test of one such model, the model correctly predicted the bankruptcy of 88% of firms that in fact did fail. The model also correctly predicted the non-bankruptcy for 82% of firms that did not fail. Suppose that the model maintains the same reliability when applied to a new group of 82 firms, of which 7 fail in the year following the time at which the model makes its predictions. Define the event F as firm failure and event B as the outcome of a test for bankruptcy. Given this information, what is the probability that a firm will fail P(F)?arrow_forwardPursuing an MBA is a major personal investment. Tuition and expenses associated with business school programs are costly, but the high costs come with hopes of career advancement and high salaries. A prospective MBA student would like to examine the factors that impact starting salary upon graduation and decides to develop a model that uses program per-year tuition as a predictor of starting salary. Data were collected for 37 full-time MBA programs offered at private universities. The data are stored in the accompanying table. Complete parts (a) through (e) below. E Click the icon to view the data on program per-year tuition and mean starting salary. a. Construct a scatter plot. Choose the correct graph below. O A. OB. Oc. OD. 80,000- 200,000- 80,000- 200,000- 0- 0- 200,000 Starting Salary (S) 80,000 Tuilion ($) 200,000 Starting Salary (S) 80,000 Tuilion (S) b. Assuming a linear relationship, use the least-squares method to determine the regression coefficients b, and b,. bo =0 b, =0…arrow_forwardPursuing an MBA is a major personal investment. Tuition and expenses associated with business school programs are costly, but the high costs come with hopes of career advancement and high salaries. A prospective MBA student would like to examine the factors that impact starting salary upon graduation and decides to develop a model that uses program per-year tuition as a predictor of starting salary. Data were collected for 37 full-time MBA programs offered at private universities. The data are stored in the accompanying table. Complete parts (a) through (e) below. Click the icon to view the data on program per year tution and mean starting salary a. Construct a scatter plot. Choose the correct graph below. 200,000- OB 200,000- 0- OC. 80,000 ○ D. 80,000- 80,000 200,000 200,000 Starting Salary ($) Starting Salary ($) 80,000 Tuition ($) b. Assuming a linear relationship, use the least-squares method to determine the regression coefficients by and by Tuition ($) by= (Round the value of by…arrow_forward
- Pursuing an MBA is a major personal investment. Tuition and expenses associated with business school programs are costly, but the high costs come with hopes of career advancement and high salaries. A prospective MBA student would like to examine the factors that impact starting salary upon graduation and decides to develop a model that uses program per-year tuition as a predictor of starting salary. Data were collected for 37 full-time MBA programs offered at private universities. The data are stored in the accompanying table. Complete parts (a) through (c) below. a. Construct a 95% confidence interval estimate of the mean starting salary upon graduation of an individual program with per-year tuition cost of $50,050. b. Construct a 95% prediction interval of the starting salary upon graduation of an individual program with per-year tuition cost of $50,050.arrow_forwardA 1 Program Per-Year Tuition ($) 62486 68484 67888 HN34567000 2 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 67050 67792 66183 66648 69860 64013 63704 66855 62839 60049 57895 55895 53947 54645 53374 52975 49195 44629 47459 48355 47415 38386 48726 48050 51251 37376 32404 44246 40984 49238 33366 23635 41729 38862 B Mean Starting Salary Upon Graduation ($) 155737 154423 149313 143503 140925 153696 147799 149794 134756 147521 142518 143619 141792 138082 125249 114639 127846 127392 130064 123958 115916 111221 110846 106083 79315 79529 103321 74754 86946 72656 76078 53979 63709 102611 53719 81335 51657 U D E F Garrow_forwardFor 25 years, Arthur Reynolds and Judy Temple tracked more than 1,400 children who participated in a publicly funded early childhood development program beginning at age 3. They found that children who participated in the program showed higher levels of educational attainment, socioeconomic status, and job skills, as well as lower rates of substance abuse, felony arrest, and incarceration, than those who did not receive school-based early education. One possible theory for the success of this program is that improving school readiness improved the children's success in school. The improved success in school in turn improved their readiness for adulthood, resulting in increased job skills and socioeconomic status as well as lower rates of substance abuse.arrow_forward
- For 25 years, Arthur Reynolds and Judy Temple tracked more than 1,400 children who participated in a publicly funded early childhood development program beginning at age 3. They found that children who participated in the program showed higher levels of educational attainment, socioeconomic status, and job skills, as well as lower rates of substance abuse, felony arrest, and incarceration, than those who did not receive school-based early education. One possible theory for the success of this program is that improving school readiness improved the children's success in school. The improved success in school in turn improved their readiness for adulthood, resulting in increased job skills and socioeconomic status as well as lower rates of substance abuse. What is the independent and dependent variable?arrow_forwardIn a two-way data table, you can compare how different values of one input variable influence the return on invested capital by holding the remaining input variables constant. True or False True Falsearrow_forwardDiscuss. Difference between the assumptions of Harrod-Domar and the Solow-Swan models on the nature of capital and discuss as well its effects on their predictionsarrow_forward
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