Bilkem is concerned about customers like Hood. Hood is the type that applies for

Question

Bilkem is concerned about customers like Hood. Hood is the type that applies for credit and subsequently defaults. Bilkem believes that 60 percent of the customers who buy coupes and apply for credit will subsequently default. In contrast, of those customers that buy sedans on credit, only 30 percent default. 1) Assuming customers buy either coupes or sedans and apply for credit, what is the probability that a customer will buy on credit and default on his or her loan? 2) What is the probability that a customer who buys on credit will default on her loan

Explanation / Answer

1)Probability that customer will buy on credit and default on his or her loan = (0.5)*(0.6)+(0.5)*(0.3)(Assuming that the probability of buying sedan=0.5 and that of coupe=0.5) =0.45 2)Probability that a customer who buys on credit will default on her loan =(0.5)*(0.6)+(0.5)*(0.3) =0.45

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