Recent difficult economic times have caused an increase in the foreclosure rate
ID: 3052437 • Letter: R
Question
Recent difficult economic times have caused an increase in the foreclosure rate of home mortgages. Statistics from the Penn Bank and Trust Company show their monthly foreclosure rate is now one loan out of every 191 loans. Last month the bank approved 358 loans.
How many foreclosures would you expect the bank to have last month? (Do not round intermediate calculations. Round your answer to 4 decimal places.)
Recent difficult economic times have caused an increase in the foreclosure rate of home mortgages. Statistics from the Penn Bank and Trust Company show their monthly foreclosure rate is now one loan out of every 191 loans. Last month the bank approved 358 loans.
Explanation / Answer
Solution
Monthly foreclosure,p = 1/191 and approved loans,n = 358 (approved)
(a) E(foreclosure) = np = (1/191)(358) = 1.8743
(b) P(2 foreclosure) = P(one)+P(two)
= 358C1(1/191)(190/191)357 + 358C2 (1/191)2(190/191)356 = 0.5580
(c) P(atleast one foreclosure) = 1-P(no foreclosure) = 1- 0.8473
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