Question

Records over the past year show that 1 out of 350 loans made by Mammon Bank have defaulted. Find the probability that 2 or more out of 290 loans will default. Hint: Is it appropriate to use the Poisson approximation to the binomial distribution? (Round λ to 1 decimal place. Use 4 decimal places for your answer.)

Answer 1

Solution:

Let x be the number of loans made by Mammon Bank that have defaulted. Therefore, the random variable x follows the Poisson distribution with:

We have to find:

We know that:

  

  

Therefore, the probability that 2 or more out of 290 loans will default is 0.1912