Risk Management DB 1
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Instructions:
Risk Management DB 1
“Risk Management”
Financial Analysts Specializing In Credit Markets Are Often Interested In Creating Models To Predict Whether A Firm Will Go Bankrupt …
Financial analysts specializing in credit markets are often interested in creating models to predict whether a firm will go bankrupt within a fixed period. If there is a good chance that a particular firm will go bankrupt, then, the firm will have to pay a very high interest rate on any debt (bonds) that it may issue. In practice, statistical models to predict bankruptcy are fairly difficult to construct. One of the variables that may be useful in distinguishing between firms that go bankrupt and firms that stay solvent is the return on assets (ROA). The accompanying file Bankruptcy.xls contains financial data on 44 firms. Of these 44 firms, 20 firms went bankrupt within 1 year after the data were collected; the other 24 firms remained solvent after 1 year. For this assignment, ignore all financial measures other than ROA. As a first step, unstack the ROA variable (see Data Utilities menu in StatTools) using “Bankrupt” as the code variable (in the menu set Bankrupt as the “cat” variable and ROA as the “Val”). Now you should have two columns of ROA data in a new worksheet. For this exercise, we will assume that firms’ ROA is in general normally distributed. a) Construct a 90% confidence interval for the average ROA of firms that remained solvent. I. Attach the StatTools output as Exhibit A or use the space below to show how you calculated the confidence interval. ii. In the space below, state the confidence interval below in the form: point estimate margin of error. __________________________________________ b) Test the hypothesis that the average ROA of firms that went bankrupt is less than -5%. i. Attach the StatTools output as Exhibit B or use the space below to demonstrate the main steps in your calculations. ii. State the p-value for this hypothesis test. _______________ iii. At the 10% level of significance, is the average ROA of firms that went bankrupt less than -5%? (Circle one.) Yes No
ASST_SLS BANKRUPT 0.13 No 0.18 No 0.20 No 0.26 No 0.30 No 0.33 No 0.35 No 0.38 No 0.40 No 0.44 No 0.45 No 0.47 No 0.48 No 0.52 No 0.53 No 0.54 No 0.55 No 0.56 No 0.58 No 0.63 No 0.69 No 0.17 Yes 0.18 Yes 0.25 Yes 0.26 Yes 0.27 Yes 0.28 Yes 0.34 Yes 0.38 Yes 0.40 Yes 0.42 Yes 0.43 Yes 0.45 Yes 0.51 Yes 0.60 Yes 0.66 Yes 0.67 Yes 0.70 Yes 0.71 Yes 0.95 Yes
Risk Management DB 1
RUBRIC |
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Excellent Quality 95-100%
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Introduction
45-41 points The background and significance of the problem and a clear statement of the research purpose is provided. The search history is mentioned. |
Literature Support 91-84 points The background and significance of the problem and a clear statement of the research purpose is provided. The search history is mentioned. |
Methodology 58-53 points Content is well-organized with headings for each slide and bulleted lists to group related material as needed. Use of font, color, graphics, effects, etc. to enhance readability and presentation content is excellent. Length requirements of 10 slides/pages or less is met. |
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Average Score 50-85% |
40-38 points More depth/detail for the background and significance is needed, or the research detail is not clear. No search history information is provided. |
83-76 points Review of relevant theoretical literature is evident, but there is little integration of studies into concepts related to problem. Review is partially focused and organized. Supporting and opposing research are included. Summary of information presented is included. Conclusion may not contain a biblical integration. |
52-49 points Content is somewhat organized, but no structure is apparent. The use of font, color, graphics, effects, etc. is occasionally detracting to the presentation content. Length requirements may not be met. |
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Poor Quality 0-45% |
37-1 points The background and/or significance are missing. No search history information is provided. |
75-1 points Review of relevant theoretical literature is evident, but there is no integration of studies into concepts related to problem. Review is partially focused and organized. Supporting and opposing research are not included in the summary of information presented. Conclusion does not contain a biblical integration. |
48-1 points There is no clear or logical organizational structure. No logical sequence is apparent. The use of font, color, graphics, effects etc. is often detracting to the presentation content. Length requirements may not be met |
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