a) Total # of Loans = 120166.

b)

Purpose
car	1224	1.02%
credit_card	26911	22.39%
debt_consolidation	70494	58.66%
educational	40	0.03%
home_improvement	7654	6.37%
house	524	0.44%
major_purchase	2483	2.07%
medical	1256	1.05%
moving	786	0.65%
other	6408	5.33%
renewable_energy	71	0.06%
small_business	1393	1.16%
vacation	704	0.59%
wedding	218	0.18

c)

loan status
Charged Off	16338
Current	13924
Default	1
Does not meet the credit policy. Status: Charged Off	33
Does not meet the credit policy. Status: Fully Paid	105
Fully Paid	66278
In Grace Period	186
Late (16-30 days)	97
Late (31-120 days)	443

d) 16338 loans are charged off (19.78%).

e)

loan_amnt
Max =	$40,000
Min =	$700
Mean =	$15,129.64
Standard Deviation	$8,376.23

f)

int_rate		Installment		int_rate
Max =	30.99	Average =	$457.2	Standard Deviation =	4.50
Min =	5.32			Once Std. Dev =	17.50
Mean =	12.99			Two Std. Dev =	22.00
Standard Deviation =	4.50

g)

fico_range_high
Max =	850
Min =	664
Mean =	697.67
Standard Deviation =	29.15
Mode =	664

h)

Grade A Charge Off =	5.84%	Average A interest rate =	7.16	t-test =	0
Grade C Charge Off =	22.55%	Average C interest rate =	13.96

i)

term		int_rate
36 months	15.28%	36 months	11.78
60 months	32.96%	60 months	16.56

Based on the analysis above answer the questions below.

1) You now have enough information to begin forming a loan investment strategy. Consider the variables int_rate, grade, and term. [25 points]

a) How would you allocate your loan portfolio across these three dimensions? There is no right answer to this question, but you should support your investment strategy with your analysis.

b) One important aspect to consider is your risk tolerance. Would you focus on the safest loans or the riskiest loans? Or would you diversify your portfolio by spreading your investment across different categories?

2) The data includes a wide range of information about the borrower. These variables include annual income, whether the income has been verified, type of employment, length of employment, home ownership, state of residence, debt-to-income ratio, outstanding debt, public records, secondary co-signers, and other information. For this last step of the analysis, you should provide some ideas for how these borrower characteristics could be used to sharpen your investment strategy. [25 points]

a) Would you prefer any of these borrower types over others based on the risk and return tradeoff? You can approach this by comparing int_rate and loan_status across different borrower types.

b) For instance, would you want to rely on income verification or not? Would you prefer co-signed loans or not? Is higher outstanding debt a positive or negative? Select a few dimensions to consider and use these dimensions to provide additional discussion about your proposed investment strategy.

Answer rating: 100% (QA)

1a Borrowing for investment is a terrible idea since there is no guarantee that you will be able to make money right away You must be patient and wise while dealing with investments and generating inc... View the full answer