The bank, as the lender, needs to dictate the interest rates that will cover the cost of lending. The bank provides the interest rate by considering its cost of borrowing from others, plus the risk that the company might file for bankruptcy after taking the loan from the bank.
In this example, we shall assume the role of a banker to assess the probability of the borrowers becoming bankrupt. The data for this has been obtained from data.world (https://data.world), which provides us with the data for the bankruptcy predictions for different companies. The data available at this link was collected from the Emerging Markets Information Services (EMIS). The EMIS database has information about the emerging markets in the world.
EMIS analyzed bankrupt companies for the period 2000-2012 and operating companies for the period 2007-2013. After the data was collected, five classifications were made based on the forecasting period...
