Understanding Z-score in Credit Risk Analysis

Easy Credit Analysis And Valuation Credit Risk Measurement

In the context of credit risk measurement, financial analysts often utilize various metrics to assess a borrower's likelihood of defaulting on debt obligations. One widely-used method is the calculation of the Z-score, which integrates various factors such as profitability, leverage, liquidity, and solvency to determine the financial health of a firm.

Which of the following statements best describes the use of the Z-score in credit risk analysis?

The Z-score measures the sensitivity of a bond's price to changes in interest rates.

The Z-score provides an indication of a firm's creditworthiness by predicting the probability of bankruptcy.

The Z-score is primarily used to assess the market value changes of equity securities.

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