A bank classifies its customer as either good or bad credit risks. Based on historical data, the bank observed that 1% of good credit risks and 10% of bad credit risks are late in paying their loan in any given month. A new customer was approved for a loan at this bank. From the credit agency checking, the bank believes that there is a 70% chance the customer will turn out to be a good credit risk. (a) Suppose that this customer’s account is overdue in the first month. Calculate the probability of this customer’s creditworthiness. (b) If the customer’s account is also overdue in the second month, calculate the probability of this customer’s creditworthiness. (c) Comment on the bank’s opinion of this customer’s creditworthiness.
A bank classifies its customer as either good or bad credit risks. Based on historical data, the bank observed that 1% of good credit risks and 10% of bad credit risks are late in paying their loan in any given month. A new customer was approved for a loan at this bank. From the credit agency checking, the bank believes that there is a 70% chance the customer will turn out to be a good credit risk.
(a) Suppose that this customer’s account is overdue in the first month. Calculate the probability of this customer’s creditworthiness.
(b) If the customer’s account is also overdue in the second month, calculate the probability of this customer’s creditworthiness.
(c) Comment on the bank’s opinion of this customer’s creditworthiness.
Step by step
Solved in 4 steps
