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An Automobile Finance Company Analyzed a Sample of Recent Automobile

question 46

Multiple Choice

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. A potential borrower who has been at their current job for 1 year would like to apply for a loan with payments equaling 21% of their income. To be approved for the loan they would need to be classified as a non-Defaulter. Of the following credit scores, which is the lowest this potential borrower could have to be approved for the loan?

Definitions:

Representative Workforce

An employee base that reflects the diversity of the demographic composition of the society it operates in.

Demographic Composition

The statistical characteristics of a population, including aspects such as age, race, gender, and income levels.

Employment Equity Program

A policy aimed at eliminating discrimination and promoting equal opportunity for all job applicants and employees in the workplace.

Workplan

A detailed outline of tasks, resources, timelines, and goals for a project or business initiative, intended to guide implementation and track progress.