This is my question!!!8. Recall the earlier example of assessing the risk of loan defaults. Supposethe bank's top managers are divided on whether to adopt the scoringsystem permanently. A number of top officers believe their intuitivejudgment about risks is superior to an "artificial" score. Accordingly, thebank decides to test its judgment against the scoring system. Themanagers will make their own designations of loans to the fourcategories and see how well they can identify problem loans. Their trackrecord over the past year is shown in the table:CategoryA ("zero" risk)B (solid)C (uncertain)D (high risk)TotalPerforming Loan.25.30.40.051.00Defaulted Loan.20.25.45.101.00a. Predict the probability of default for each loan category. (Assume theoverall default rate is 10 percent: Pr(default) = .1.)b. How do these risk assessments, based on judgment and intuition,compare with the earlier predictions based on credit scores? Whichseems to provide more valuable information? Explain. TABLE 13.2Assessing Loan RisksPart (a) lists the fre-quency of loan cate-gories by actualdefault experience.Part (b) lists the jointprobabilities of alloutcomes.Part (c) shows theconditionalprobabilities.This is the example!!!!!!(a) Frequencies of Loan Categories by Actual Default RecordCategoryPerforming LoanDefaulted LoanA ("zero" risk).1B (solid).2C (uncertain).4D (high risk).3Total1.01.0For example, 10 percent of all defaulted loans were (incorrectly) judgedto be "zero" risk at the time the money was lent.(b) Joint ProbabilitiesCategoryA ("zero" risk)B (solid)C (uncertain)D (high risk)Total.2.4.3.1Performing Loan.18.36.27.09.90(c) Conditional ProbabilitiesPr(default A) = .01/.19 = .05Pr(default B) = .02/.38 = .05Pr(default C) = .04/.31.13Pr(default D) = .03/.12 .25Defaulted Loan.01.02.04.03.10Total.19.31.121.00

Given information: Category Performing Loan Defaulted Loan A("zero" risk) 0.25 0.2 B(solid)…

Answered: Recall the earlier example of assessing…

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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