Let’s say that you are the Business Analytics Head at a national bank. From the historical data, you have determined that there is a 0.33 probability that a customer would default on a particular loan. What is the probability that out of the next two customers who apply for the same loan, both would not default on the loan?0.110.890.450.29
Question
Let’s say that you are the Business Analytics Head at a national bank. From the historical data, you have determined that there is a 0.33 probability that a customer would default on a particular loan. What is the probability that out of the next two customers who apply for the same loan, both would not default on the loan?0.110.890.450.29
Solution
The probability that a customer would not default on a loan is 1 - 0.33 = 0.67 (since the total probability is always 1).
If we want to find the probability that both customers would not default, we multiply the individual probabilities together (assuming the events are independent, which means one customer's decision does not affect the other's).
So, the probability that both customers would not default is 0.67 * 0.67 = 0.4489, which is approximately 0.45 when rounded to two decimal places. So, the answer is 0.45.
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