Answered: Q# Defaulting on a loan means failing…

MATLAB: An Introduction with Applications

6th Edition

ISBN:9781119256830

Author:Amos Gilat

Publisher:Amos Gilat

Chapter1: Starting With Matlab

Section: Chapter Questions

Problem 1P

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Q# Defaulting on a loan means failing to pay it back on time. The default rate among X university students on their student loans is 6 %. As a project you develop a test to predict which
students will default. Your test is good but not perfect. It gives 4% false positives, i.e. prediciting student will default who in fact will not. If has a 0% false negative rate, i.e. prediciting a
student won't default who in fact will.
a) Suppose a random student predicts positive. Report the probability that he will truly default.
b) Someone offers to bet me the student in part(a) won't default. They want me to pay them Rs. 5k if the student doesn't default and they'll pay me Rs. 20k if the student does default.

Is this a good bet for me to take?

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