Suppose That a Bank Wishes to Predict Whether or Not

question 95

Multiple Choice

Suppose that a bank wishes to predict whether or not an existing holder of its Silver credit card will upgrade, for an annual fee, to its Platinum credit card. To do this, the bank carries out a pilot study that randomly selects 40 of its existing Silver card holders and offers each Silver card holder an upgrade to its Platinum card. Here, the response variable Upgrade equals 1 if the Silver card holder decided to upgrade and 0 otherwise. Moreover, the predictor variable Purchases is last year's purchases (in thousands of dollars) by the Silver card holder, and the predictor variable PlatProfile equals 1 if the Silver card holder conforms to the bank's Platinum profile and 0 otherwise. Below is the classification tree they derived from the data collected in the study. Based on this classification tree, which of the following Silver card holders would the bank classify as a non-upgrader (assuming they classify those with an upgrade probability estimate of at least .5 as upgraders) ?

• A) PlatProfile(1) & Purchases = 31.50
• B) PlatProfile(1) & Purchases = 39.55
• C) Purchases = 18.25
• D) Purchases = 34.99
• E) PlatProfile(0) & Purchases = 49.80

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Definitions:

Goodwill

The intangible asset that arises when a business is acquired for more than the fair value of its net identifiable assets, reflecting factors like reputation, brand, and customer relationships.

Intragroup Dividends

Dividends paid between entities within the same group, which are eliminated in consolidation to avoid double counting of income.

Statement of Financial Position

A financial document summarizing an entity's assets, liabilities, and shareholders' equity at a specific point in time.