Reference no: EM132585381

A bank develops the following linear discriminant model of the credit quality (i.e., a higher Z means a better credit quality) based on their own loan database:

Z = β1X1 + β2X2 + β3X3 where X1 is return on asset (net income/total assets), X2 is dividend payout ratio (dividend payments/net income), and X3 is equity to debt ratio (equity value/long-term debts). Which statement below about the coefficients of three variables is correct?

Select one:

a. β1 is positive; β2 is negative; β3 is positive
b. β1 is negative; β2 is positive; β3 is positive
c. β1 is positive; β2 is positive; β3 is negative
d. β1 is positive; β2 is positive; β3 is positive
e. β1 is negative; β2 is negative; β3 is negative