4.29 Of a finance company's loans, 1% are defaulted (not completely repaid). The company routinely runs credit checks on all loan applicants. It finds that 30% of defaulted loans went to poor risks, 40% to fair risks, and 30% to good risks. Of the nondefaulted loans, 10% went to poor risks, 40% to fair risks, and 50% to good risks. Use Bayes' Formula to calculate the probability that a poor-risk loan will be defaulted.

A loan officer compares the interest rates for 48-month fixed-rate auto loans and 48-month variable-rate auto loans. Two independent, random samples of auto loan rates are selected. A sample of five 48-month variable-rate auto loans had the following loan rates: 2.50€ 3.12% 2.880 3.19% 3.22% while a sample of five 48-month fixed-rate auto loans had loan rates as follows: 4.028% 3.93% 4.395% 3.65€ Figure 11.7 JMP Output of Testing the Equality of Mean Loan Rates for Variable and Fixed 48-Month Auto Loans Means and Std Deviations Level Fixed Variable t Test www Variable-Fixed Assuming equal variances Difference Std Err Dif Upper CL Dif Lower CL Dif Confidence HO: uf- uv= we will we will Number 5 5 t= p-value= Confidence interval= HO: uf- uv -1.0586 0.1841 -0.6341 -1.4831 0.95 (a) Set up the null and alternative hypotheses needed to determine whether the mean rates for 48-month variable-rate and fixed-rate auto loans differ. t= 4.20% (b) Figure 11.7 gives the JMP output of using the equal…

Meier and Frank is a chain of department stores located in the Northwest.  The company has issued its own credit cards for a number of years.  As a new employee in the finance department, imagine that you have been assigned to a major investigation of the firm’s credit policies designed to reduce bad debt losses.  You are requested to investigate the relationship between marital status at the time the card is issued and the subsequent payment record of the individual.  You randomly select 100 credit cards issued three years previously.  Of the 70 individuals that were married at the time the cards were issued, 11 have defaulted on a payment.  Of the 30 individuals who were single when the cards were issued, 7 have defaulted.  Do these data present sufficient evidence to indicate that marital status affects credit-worthiness?  Use Alpha = 0.05.

Suppose a mutual fund has a portfolio of stocks that have a market value of $10.75 billion and the company has 900 million shares of stock. What is the net asset value (in dollars) of a share of the mutual fund?

1. Suppose an electronics store offers an extended warranty on a cell phone that covers screenrepair and camera repair and will cost $9.99 per month. Suppose there is a 14% chance ofneeding a screen repair in the next year and an 11% chance of needing a camera repair.Suppose a screen repair will cost the store $155 and a camera repair will cost the store $79.How much annual profit does the store expect for each warranty purchased? 2. Suppose there is a probability of 4/5 that you will get an A on any given exam. Create atable giving the probability distribution for the number of A’s that you could get if you taketwo exams.

Investment advisors agree that near-retirees, defined as people aged 55 to 65, should have balanced portfolios. Most advisors suggest that the near-retirees have no more than 50% of their investments in stocks. However, during the huge decline in the stock market in 2008, 15% of near-retirees had 90% or more of their investments in stocks (P. Regnier, “What I Learned from the Crash,” Money, May 2009, p. 114). Suppose you have a random sample of 12 people who would have been labeled as near-retirees in 2008. What is the probability that during 2008:   two or more had 90% or more of their investment in stocks?

c63. A fund manager is considering investment in the equity shares of one of two companies. The criterion for selecting the company for investment is consistency of return on net worth. The following data have been collected: Financial Return on Networth (%) Year Modern Industries Pioneer Industries Ltd. (PIL) Ltd. (MIL) 2010-2011 19 20 2009-2010 20 24 2008-2009 16 16 2007-2008 13 15 2006-2007 12 10 You are required to identify the company in which the fund manager should invest."

A customer approached a bank for a $50, 000 loan at 12% interest annu-ally. If the bank does not approve the loan, the bank will invest its $50, 000 to bonds with a 6% return annually. There are two types of customers, good and bad. Good customers never default and bad customer will default. By past experience, the bank knows that 4% of customers are bad, in which case the bank loses the entire $50, 000. Suppose the bank can cost $500 to run a credit check to get favorable or unfavorable recommendation, such that 77 P(favorable rec.good customer) 96 1 P(favorable rec.|bad customer) = 4 (Good customers are more likely to get a good rec., but there may still be errors.) 1. Suppose the bank purchases the credit check service. Should the bank follow the recommendation? 2. What should the bank do to maximize expected profit? 1. Grant the loan directly. 2. Reject the loan directly. 3. Pay $500 to rum credit check and decide according to whether a favorable recommendation is received. 3. What…

From some financial statistics, it is found that the monthly average electricial charges was 2,460 and S.D. Rs. 120. The monthly average direct wages was Rs. 42,000 and S.D. Rs. 1,200. State which is the more variable with proper reasons.

The amount of income spent on housing is an important component of the cost of living. The total costs of housing for homeowners might include mortgage payments, property taxes, and utility costs (water, heat, electricity). An economist selected a sample of 20 homeowners in New England and then calculated these total housing costs as a percent of monthly income, 5 years ago and now. The information is reported below. Is it reasonable to conclude the percent is less now than 5 years ago?   Homeowner Five Years Ago   Now   Homeowner   Five Years Ago   Now 1   17 %     10 %     11       35 %     32 % 2   20       39       12       16       32   3   29       37       13       23       21   4   43       27       14       33       12   5   36       12       15       44       40   6   43       41       16       44       42   7   45       24       17       28       22   8   19       26       18       29       19   9   49       28       19       39       35   10   49…