# Question

Refer to Exercise 4.29. Show that the posterior probability of default, given a fair risk, equals the prior probability of default. Explain why this is a reasonable result.

In exercise

Of a finance company’s loans, 1% are defaulted (not completely repaid). The company routinely runs credit checks on all loan applicants. It finds that 30% of defaulted loans went to poor risks, 40% to fair risks, and 30% to good risks. Of the nondefaulted loans, 10% went to poor risks, 40% to fair risks, and 50% to good risks.

In exercise

Of a finance company’s loans, 1% are defaulted (not completely repaid). The company routinely runs credit checks on all loan applicants. It finds that 30% of defaulted loans went to poor risks, 40% to fair risks, and 30% to good risks. Of the nondefaulted loans, 10% went to poor risks, 40% to fair risks, and 50% to good risks.

## Answer to relevant Questions

In Example 4.4, we described a new test for determining defects in circuit boards. Compute the probability that the test correctly identifies the defects D1, D2, and D3; that is, compute P(D1|A1), P(D2|A2), and P(D3|A3). Classify each of the following random variables as either continuous or discrete: a. The survival time of a cancer patient after receiving a new treatment for cancer b. The number of ticks found on a cow entering an ...Suppose the random variable y has a Poisson distribution. Compute the following probabilities: a. P(y = 4) given μ = 2 b. P(y = 4) given μ = 3.5 c. P(y > 4) given μ = 2 d. P(1 ≤ y The R& D department of a company has developed a new home screening test for diabetes. A demonstration of the type of results that may occur was mandated by upper management. Simulate the probability of obtaining at least 24 ...Federal resources have been tentatively approved for the construction of an outpatient clinic. In order to design a facility that will handle patient load requirements and stay within a limited budget, the designers studied ...Post your question

0