Answered: Find the probability that the model…

Find the probability that the model will predict bankruptcy for a firm. b/ Find the probability that a firm will go bankrupt, given that the model has predicted it will do so.

A First Course in Probability (10th Edition)

10th Edition

ISBN:9780134753119

Author:Sheldon Ross

Publisher:Sheldon Ross

Chapter1: Combinatorial Analysis

Section: Chapter Questions

Problem 1.1P: a. How many different 7-place license plates are possible if the first 2 places are for letters and...

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Question

An auditing model correctly predicted bankruptcy of 90% of firms
that in fact did fail and correctly predicted non-bankruptcy of 80% of firms that did not
fail. Besides, the historical data shows that 30% of firms for which the model made its
prediction did fail in the last year.
a/ Find the probability that the model will predict bankruptcy for a firm.
b/ Find the probability that a firm will go bankrupt, given that the model has predicted it
will do so.

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