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An Automobile Finance Company Analyzed a Sample of Recent Automobile

question 48

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An automobile finance company analyzed a sample of recent automobile loans to try to determine key factors in identifying borrowers who would be likely to default on their auto loan. The response variable Default equals 1 if the borrower defaulted during the term of the loan and 0 otherwise. The predictor variable AutoDebt% was the ratio (expressed as a percent) of the required loan payments to the borrower's take-home income at the time of purchase. JobTime was the number of years the borrower had worked at their current job at the time of purchase. CredScore was the borrower's credit score at the time of purchase. Below is part of the classification tree the finance company derived from the data collected in the study. Assume they classify those with a default probability estimate of at least .5 as Defaulters. Based on this classification tree, a member of the study sample who had a credit score of 667, been at their current job for 3 years, took out a loan with payments equaling 13% of their income, and did not default would be

Definitions:

Correlation

A quantitative measure that demonstrates the extent of simultaneous variation between two or more variables.

Prolonged Stress

Refers to a chronic state of stress that lasts for an extended period of time, potentially leading to negative health outcomes.

Cortisol Levels

The concentration of cortisol, a hormone produced by the adrenal glands, which is often measured to assess stress response or adrenal function.

Epinephrine Levels

The concentration of epinephrine, also known as adrenaline, a hormone and neurotransmitter involved in the body's fight-or-flight response.