Refer to question 10. Suppose that the manager wants to classify loan applicants into one of three groups:

(1) Acceptable loan applications,

(2) Loan applications requiring further scrutiny, and

(3) Unacceptable loan applications.

Assume that the first six observations given in question 10 correspond to group 1, the next six correspond to group 2, and the final six correspond to group 3.

a. Use the distance measure approach to DA to classify each loan.

b. Create a confusion matrix that summarizes the accuracy of the distance measure approach on the data for the current loans. Overall, how accurate does the distance measure approach to DA appear to be on these data?

c. Classify each of the five new applicants from question 8 using the distance measure approach. Into which of the three groups do you expect each loan applicant to fall?