Before lending someone money, banks must decide whether they believe the applicant will repay the loan. One
Question:
a) When a person defaults on a loan, which type of error did the bank make?
b) Which kind of error is it when the bank misses an opportunity to make a loan to someone who would have repaid it?
c) Suppose the bank decides to lower the cutoff score from 250 points to 200. Is that analogous to choosing a higher or lower value of a for a hypothesis test? Explain.
d) What impact does this change in the cutoff value have on the chance of each type of error?
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Related Book For
Business Statistics
ISBN: 9780321925831
3rd Edition
Authors: Norean Sharpe, Richard Veaux, Paul Velleman
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