Question: Consider the following data concerning credit default: Age Loan Default D1 D2 25 40 000 N 102 000 104 35 60 000 N 82 000

Consider the following data concerning credit default:

Age

Loan

Default

D1

D2

25

40 000

N

102 000

104

35

60 000

N

82 000

69

45

80 000

N

62 000

92

20

20 000

N

122 000

28

35

120 000

N

22 000

125

52

18 000

N

124 000

55

23

95 000

Y

47 000

98

40

62 000

Y

80 000

74

60

100 000

Y

42 000

117

48

220 000

Y

78 000

225

33

150 000

Y

8 000

154

Age and Loan are two numerical variables (predictors) and Default is the target.

Use the k-NN algorithm with k=3 and the given training set to classify an unknown case (Age=48 and Loan=142 000) using Euclidean distance, and without Normalisation for the following cases:

  1. Use the loan amount as is and
  2. Use the loan amount in 1000 units.

You are also required to comment on your result.

The calculation for both part (i) and (ii) are included in the data table: columns D1 and D2

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