Question: Credit Risk Evaluation

Background: You are analyzing a logistic regression model that predicts the

likelihood of a customer defaulting on a loan. The model outputs probabilities

that range from $0$ to $1.$

Data: The following probabilities have been calculated for five different

customers: $0\mathrm{.}05,0\mathrm{.}20,0\mathrm{.}55,0\mathrm{.}70,0\mathrm{.}90.$

$1.$ Determine an appropriate cut$-$off point for deciding whether to grant a

loan.

$2.$ Justify your choice of cut$-$off point based on the balance between the risk

of default and the opportunity of lending to more customers.

$3.$ Classify each customer as 'Loan Approved' or 'Loan Denied' based on your

cut$-$off point.