Below Gives the Data Concerning (1) the Dependent Variable Default

question 38

Multiple Choice

Below gives the data concerning (1) the dependent variable Default which equals 1 if a customer defaults on their loan and 0 if they do not; (2) the independent variable Price of Home, which is the price of the home (in tens) and (3) the independent variable First Purchase which equals 0 if the customer has owned a home before and 1 if this is their first home. Identify and interpret the odds ratio estimate for Price of Home.

• A) Odds ratio: 4.56789; for each addition $10 spent on a home, the odds of a person defaulting increased 4.56%
• B) Odds ratio: 4.56789; for each addition $100 spent on a home, the odds of a person defaulting increased 4.56%
• C) Odds ratio: 4.56789; for each addition $10 spent on a home, a default is 4 times more likely
• D) Odds ratio: 4.56789; for each addition $1000 spent on a home, a default is 4 times less likely for each additional $1,000 spent

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Definitions:

Depreciation

A method of allocating the cost of a tangible asset over its useful life.

Amortization

The process of spreading out a loan into a series of fixed payments over time, covering both principal and interest.

Pure Endowment

An insurance policy where the insurer agrees to pay a specified sum of money at the end of a determined period on the condition that the insured is still alive.

Quasi-Endowment

Funds that are not permanently restricted under the terms of the gift but are designated by the governing board to function as an endowment, thus not easily expendable for general operations.