Do Exercise 10.1, a and b.

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 the

default 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.

Subject | Computer |

Due By (Pacific Time) | 11/06/2015 12:00 am |

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