The estimated linear probability model used by a financial institution to predict business loan applicant default probabilities is given by:
PD = 0.03X1 + 0.02X2 – 0.05X3 + error
For prospective borrower A: X1 = 0.75, X2 = 0.25, and X3 = 0.15
For prospective borrower B: X1 = 0.70, X2 = 0.30, and X3 = 0.20
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