3. Dagupan Bank reviewed its credit card policy with the intention of recalling some of its credit cards. In the past, approximately 5% of cardholders defaulted, leaving the bank unable to collect outstanding balance. Hence, management established a prior probability of 0.05 that any particular cardholder will default. The bank also found that the probability of missing a monthly payment is 0.20 for customers who did not default. Of course, the probability of missing a monthly payment for those who default is 1. Letting M/ be the event that a customer missed payment, D, be the event that a customer holder defaults, and D₂ be the event that a customer does not default. P(D₁) = P(M/D₂) = P(M/D₁)= P(D₂) = a. Given that a customer missed one or more monthly payments, compute the posterior probability that the customer will default, P(D1/M). b. The bank would like to recall its card if the probability that a customer will default is greater than 0.20. Should the bank recall its card if the customer misses a monthly payment? Why or why not?

3. Dagupan Bank reviewed its credit card policy with the intention of recalling some of its credit cards. In the past, approximately 5% of cardholders defaulted, leaving the bank unable to collect outstanding balance. Hence, management established a prior probability of 0.05 that any particular cardholder will default. The bank also found that the probability of missing a monthly payment is 0.20 for customers who did not default. Of course, the probability of missing a monthly payment for those who default is 1. Letting M/ be the event that a customer missed payment, D, be the event that a customer holder defaults, and D₂ be the event that a customer does not default. P(D₁) = P(M/D₂) = P(M/D₁)= P(D₂) = a. Given that a customer missed one or more monthly payments, compute the posterior probability that the customer will default, P(D1/M). b. The bank would like to recall its card if the probability that a customer will default is greater than 0.20. Should the bank recall its card if the customer misses a monthly payment? Why or why not?

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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