Question

In: Statistics and Probability

10.1. Financial Condition of Banks. The file Banks.xls includes data on a sample of 20 banks....

10.1. Financial Condition of Banks. The file Banks.xls includes data on a sample of 20 banks. The Financial Condition column records the judgment of an expert on the financial condition of each bank. This dependent variable takes one of two possible values—weak or strong—according to the financial condition of the bank. The predictors are two ratios used in the financial analysis of banks: TotLns&Lses/Assets is the ratio of total loans and leases to total assets and TotExp/Assets is the ratio of total expenses to total assets. The target is to use the two ratios for classifying the financial condition of a new bank. Run a logistic regression model (on the entire dataset) that models the status of a bank as a function of the two financial measures provided. Specify the success class as weak (this is similar to creating a dummy that is 1 for financially weak banks and 0 otherwise), and use thedefault cutoff value of 0.5.

a.Write the estimated equation that associates the financial condition of a bank with its two predictors in three formats:

i. The logit as a function of the predictors

ii. The odds as a function of the predictors

iii. The probability as a function of the predictors

b. Consider a new bank whose total loans and leases/assets ratio = 0.6 and total expenses/assets ratio = 0.11. From your logistic regression model, estimate the following four quantities for this bank (use Excel to do all the intermediate calculations; show your final answers to four decimal places): the logit, the odds, the probability of being financially weak, and the classification of the bank.

c. The cutoff value of 0.5 is used in conjunction with the probability of being financially weak. Compute the threshold that should be used if we want to make a classification based on the odds of being financially weak, and the threshold for the corresponding logit.

d. Interpret the estimated coefficient for the total loans & leases to total assets ratio (TotLns&Lses/Assets) in terms of the odds of being financially weak.

e. When a bank that is in poor financial condition is misclassified as financially strong, the misclassification cost is much higher than when a financially strong bank is misclassified as weak. To minimize the expected cost of misclassification, should the cutoff value for classification (which is currently at 0.5) be increased or decreased?

Here is the data: (We are solving using analyticalsolver.com. If possible, it would be very useful to see it done that way.)

Obs Financial Condition TotCap/Assets TotExp/Assets TotLns&Lses/Assets
1 1 9.7 0.12 0.65
2 1 1 0.11 0.62
3 1 6.9 0.09 1.02
4 1 5.8 0.1 0.67
5 1 4.3 0.11 0.69
6 1 9.1 0.13 0.74
7 1 11.9 0.1 0.79
8 1 8.1 0.13 0.63
9 1 9.3 0.16 0.72
10 1 1.1 0.16 0.57
11 0 11.1 0.08 0.43
12 0 20.5 0.12 0.8
13 0 9.8 0.07 0.69
14 0 7.9 0.08 0.53
15 0 9.6 0.09 0.73
16 0 12.5 0.09 0.3
17 0 18.3 0.08 0.49
18 0 7.2 0.11 0.55
19 0 14 0.08 0.44
20 0 8.3 0.08

0.51

Solutions

Expert Solution


Related Solutions

Financial Condition of Banks (5 points). The file Banks.csv includes data on a sample of 20...
Financial Condition of Banks (5 points). The file Banks.csv includes data on a sample of 20 banks. The “Financial Condition” column records the judgment of an expert on the financial condition of each bank. This outcome variable takes one of two possible values—weak or strong—according to the financial condition of the bank. The predictors are two ratios used in the financial analysis of banks: TotLns&Lses/Assets is the ratio of total loans and leases to total assets and TotExp/Assets is the...
Please give the solution for the following question using R program 10.1 Financial Condition of Banks....
Please give the solution for the following question using R program 10.1 Financial Condition of Banks. The file Banks.csv includes data on a sample of 20 banks. The “Financial Condition” column records the judgment of an expert on the financial condition of each bank. This outcome variable takes one of two possible values—weak or strong—according to the financial condition of the bank. The predictors are two ratios used in the financial analysis of banks: TotLns&Lses/Assets is the ratio of total...
Data, information, and file structures are necessary components of an EHR. This includes: types of data...
Data, information, and file structures are necessary components of an EHR. This includes: types of data and their formats, process requirements (i.e., vocabulary standards), types of data architectures, data dictionaries, metadata, data management and data modeling. discuss the meaning of: Data governance Data quality Data integrity Please include the sources as well as refrences  
Banks are an important part of Australia’s financial system and their business includes taking deposits from...
Banks are an important part of Australia’s financial system and their business includes taking deposits from the public and providing loans to households and businesses. What is a reserve ratio and explain how a fractional banking system operates? Following the 2008 global financial crisis (GFC), the real-world deposit multiplier tended to be way smaller than the simple multiplier. Explain why that was the case and how it would have affected the money supply in the economy.
The accompanying data file contains 20 observations for t and yt.
The accompanying data file contains 20 observations for t and yt. t 1 2 3 4 5 6 7 8 9 10 yt 12.1 12.2 9.3 12.8 8.6 9.3 14.3 12.1 11.5 15.1 t 11 12 13 14 15 16 17 18 19 20 yt 13.5 9.8 9.6 14.5 14.9 12.4 11.2 8.8 11.8 10 a. Discuss the presence of random variations. The smoother appearance of the graph suggests the presence of random variations. The smoother appearance of the graph...
In Python. The file “essay.txt” attached to this assignment includes an essay. The essay includes a...
In Python. The file “essay.txt” attached to this assignment includes an essay. The essay includes a couple of sections that are separated by two consecutive newline characters (i.e. ‘\n’) that are shown as empty lines between the sections if you open the file in a text editor like Notepad. Each section starts with a title followed by a couple of paragraphs; the title and the paragraphs are separated by a newline character. Each paragraph includes a couple of sentences that...
The accompanying data file contains 20 observations for t and yt. The data are plotted below....
The accompanying data file contains 20 observations for t and yt. The data are plotted below. t 1 2 3 4 5 6 7 8 9 10 yt 10.8 14.1 10.3 10.9 11.3 13.5 10.7 9.2 8.8 12 t 11 12 13 14 15 16 17 18 19 20 yt 9.8 11 15.1 12.5 12.9 12.3 9 14.9 10.1 11.9 b-1. Use the exponential smoothing method to make forecasts with α = 0.2. (Round intermediate calculations to at least 4...
A simple random sample of 20 customers is taken from a customer information file and the...
A simple random sample of 20 customers is taken from a customer information file and the average age is 27. The sample standard deviation s is found to be 5.                                              (5 marks) Test the hypothesis that the population mean age is less than 29 using the critical value approach and a 0.10 level of significance. Test the hypothesis that the population mean age is different from 30 using the 0.05 level of significance.
A simple random sample of 20 customers is taken from a customer information file and the...
A simple random sample of 20 customers is taken from a customer information file and the average age is 27. The sample standard deviation s is found to be 1.5.                                                 (5 marks) Test the hypothesis that the population mean age is less than 29 using the critical value approach and a 0.10 level of significance. Test the hypothesis that the population mean age is different from 30 using the 0.05 level of significance. .
The activity of a sample of a radioisotope at some time is 10.1 mCi and 0.36...
The activity of a sample of a radioisotope at some time is 10.1 mCi and 0.36 h later it is 6.60 mCi. Determine the following: (a)Decay constant (in s−1) (b) Half-life (in h) (c) Nuclei in the sample when the activity was 10.1 mCi (d) Activity (in mCi) of the sample 1.90 h after the time when it was 10.1 mCi
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT