Question

his is a problem that can be solved using Bayes' theorem.

Narrative:

A local bank reviewed its credit card policy with the intention
of recalling some of its credit cards. In the past, 5% of
cardholders defaulted, leaving the bank unable to collect the
outstanding balance. Hence management established a
**prior****probability** of
0.05 that any card holder will default. the bank also found that
the probability of missing a monthly payment for those who default
is 1.0. For customers who do **not** default, the
probability of missing a monthly payment is 0.02.

Given that the customer missed one or more monthly payments, compute the following:

a) posterior probability that a customer will default.

b) posterior probability that a customer will miss a payment.

c) How would the bank management use this information?

I recommend that you start by drawing a decision tree and assigning probabilities to each of its branches, then apply the Bayesian theorem. See the part supplier example in Section 4.5 for guidance. Carefully label each event and assign prior, conditional, joint and posterior probabilities to each event (you may use a tabular approach in Excel to make sure you don't make any arithmetical mistake). Show all your work

Answer #1

A local bank reviewed its credit card policy with the intention
of recalling some of its credit cards. In the past approximately 4%
of cardholders defaulted, leaving the bank unable to collect the
outstanding balance. Hence, management established a prior
probability of .04 that any particular cardholder will default. The
bank also found that the probability of missing a monthly payment
is .10 for customers who do not default. Of course, the probability
of missing a monthly payment for those...

Management at a bank establishes a prior probability of .05 that
any particular cardholder will default. The bank also found that
the probability of missing a monthly payment of .20 for customers
who do not default. of course, the probability of missing a monthly
payment for those who default is 1. A) Given that a customer missed
one or more monthly payments, compute the probability that the
customer will default B) The bank would like to recall its card if...

After reading the following article, how would you summarize it?
What conclusions can be made about Amazon?
Case 12: Amazon.com Inc.: Retailing Giant to High-Tech Player?
(Internet Companies) Overview Founded by Jeff Bezos, online giant
Amazon.com, Inc. (Amazon), was incorporated in the state of
Washington in July 1994, and sold its first book in July 1995. In
May 1997, Amazon (AMZN) completed its initial public offering and
its common stock was listed on the NASDAQ Global Select Market.
Amazon quickly...

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