Looking for a correct answer on 5.S.24. Thanks in advance! Are successes in the

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Looking for a correct answer on 5.S.24.

Thanks in advance!

Are successes in the two screening procedures independent of one another? A bank classifies borrowers as "high risk" or "low risk," and 15% of its loans are made to those in the " 5S.24 high risk" category. Of all its loans, 5% are in default, and 40% of those in default are to high- risk borrowers. What is the probability that a high-risk borrower will default? 5.S.25 Households in a certain city were surveyed to determine whether they would subscribe to a cable me The tahle

Explanation / Answer

5.S.24)

Given P(High risk) = 0.15, P(Default) = 0.05, P(High risk/Default) = 0.40

P(Default and High risk) = P(Default) * P(High risk / Default) = 0.05*0.40 = 0.02

The probability that a high-risk borrower will default is

P(Default / High-risk) = P(Default and High-risk) / P(High-risk)
= 0.02 / 0.15 = 0.1333

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