Instructions For each question, your answer must be based on an analysis of cond
ID: 3142214 • Letter: I
Question
Instructions For each question, your answer must be based on an analysis of conditional probability and/or independence. You must state each event relevant to the problem under consideration, and the formulas you use. Just writing down an answer or calculation without basing it on the relevant formula(s) on probability and conditinoal probability will earn zero credit (even if the answer is correct).
1. As accounts manager in your company, you classify 21% of the customers as "good credit" and the rest as "risky credit" depending on their credit rating. Customers in the "risky" category allow their accounts to go overdue 62% of the time on average, whereas those in the "good" category allow their accounts to go overdue only 5% of the time.
Let R: An account is risky credit, D: An account is overdue
Fill in the following values (no calculation necessary; also no partial credit; 0.25 each):
(a) P(DR) = ____
(b) P(DR')= ____
(c) P(D'R) = ____
(d) P(R)= ____
(e) P(DR)= ____
Explanation / Answer
• Let G: Good, R: Risky, D : Overdue
• Not G is R’
Given:
P(G)=0.21 P(R ) = 0.79
P(D|G)=0.05 P(D|R)=0.62
(a) P(DR) = 0.62
(b) P(DR')= 0.05
(c) P(D'R) = 1-0.62 =0.38
(d) P(R) = 0.79
(e) P(DR) = P(R) * P(D|R) = 0.79*0.62 = 0.4895