1. FastCash Financial (FCF) caters to customers who are seen as too risky for the major...

  

Transcribed Image Text:

1. FastCash Financial (FCF) caters to customers who are seen as too risky for the major banks. Borrowers are charged relatively high interest rates because they have a higher probability of defaulting on their loans. FCF wants to refine its lending practices such that it is not accepting unnecessary risk. To this end, it has started to explore its past customers in more detail. It has discovered the following: 15% percent of its loans are resulting in default (customers do nor repay the full loan). . Among those who pay off their loans, 60% have jobs in the public sector (government employees, healthcare workers, teachers......). However, among those who default on their loans, only 20% are public sector workers. Among public sector workers who payoff their loans, 60% also have car loans, but among those public sector workers who default, 80% have car loans as well. Among those not in the public sector who pay off their loans, 70% also have car loans, but among those non-public sector workers who default, 90% also have car loans. a. Construct a probability tree diagram that shows whether the borrower defaulted or paid off the loan, worked in the public sector or not, and had a car loan or not. The branches of the tree should be labelled with respect to the event the branch represents and the probability of being on that branch. You may wish to draw your tree by hand and paste a picture into your assignment. 1. FastCash Financial (FCF) caters to customers who are seen as too risky for the major banks. Borrowers are charged relatively high interest rates because they have a higher probability of defaulting on their loans. FCF wants to refine its lending practices such that it is not accepting unnecessary risk. To this end, it has started to explore its past customers in more detail. It has discovered the following: 15% percent of its loans are resulting in default (customers do nor repay the full loan). . Among those who pay off their loans, 60% have jobs in the public sector (government employees, healthcare workers, teachers......). However, among those who default on their loans, only 20% are public sector workers. Among public sector workers who payoff their loans, 60% also have car loans, but among those public sector workers who default, 80% have car loans as well. Among those not in the public sector who pay off their loans, 70% also have car loans, but among those non-public sector workers who default, 90% also have car loans. a. Construct a probability tree diagram that shows whether the borrower defaulted or paid off the loan, worked in the public sector or not, and had a car loan or not. The branches of the tree should be labelled with respect to the event the branch represents and the probability of being on that branch. You may wish to draw your tree by hand and paste a picture into your assignment.