CMA Final · Risk Management in Banking and Insurance · Sovereign Risk and Insolvency Risk
Under the Altman Z-score model for a listed manufacturing firm, which zone indicates a high probability of financial distress and possible insolvency?
In the original Altman Z-score model for listed manufacturers, a score below 1.81 places the firm in the distress zone, signalling a high probability of bankruptcy. Scores between 1.81 and 2.99 are the grey zone, and scores above 2.99 are considered safe.
- AZ-score above 2.99
- BZ-score between 1.81 and 2.99
- CZ-score below 1.81Correct
- DZ-score exactly equal to 2.99 only
Explanation
In the original Altman model, a score below 1.81 falls in the distress zone, 1.81 to 2.99 is the grey zone, and above 2.99 is the safe zone. The grey zone indicates uncertainty, not high distress.
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