The Account receivable department of a firm has developed the following Five (S) stages of account...

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The Account receivable department of a firm has developed the following Five (S) stages of account receivable. State 1: Account Paid State 2: One Month Past Due State 3: Two Months Past Due State 4: Three Months Past Due State 5: Bad Debt (i.e. money lost) If the account receivable is in One month past due, there is 60% chances that it will be paid and 40% chances that it will be paid next month. If the account receivable is in Two months past due, there is 75% chances that it will be paid and 25% chances that it will be paid next month. If the account receivable is in Three month past due, there are 50-50 chances either it will be paid or classified as a Bad Debt. Develop a Transition Probability Matrix for this problem and answer the following questions: (a) What is the probability that account which is currently Two Months Past Dues will eventually will be paid. (b) What is the probability that account which is currently One Month Past Dues will eventually will become Bad Debt. The Account receivable department of a firm has developed the following Five (S) stages of account receivable. State 1: Account Paid State 2: One Month Past Due State 3: Two Months Past Due State 4: Three Months Past Due State 5: Bad Debt (i.e. money lost) If the account receivable is in One month past due, there is 60% chances that it will be paid and 40% chances that it will be paid next month. If the account receivable is in Two months past due, there is 75% chances that it will be paid and 25% chances that it will be paid next month. If the account receivable is in Three month past due, there are 50-50 chances either it will be paid or classified as a Bad Debt. Develop a Transition Probability Matrix for this problem and answer the following questions: (a) What is the probability that account which is currently Two Months Past Dues will eventually will be paid. (b) What is the probability that account which is currently One Month Past Dues will eventually will become Bad Debt.

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SOLUTION To develop a Transition Probability Matrix for the problem we will represent the states as ... View the full answer