Exhibit 9-2 a Customer Has Approached a Local Credit Union for a for a $20,000

question 1

Essay

Exhibit 9-2
A customer has approached a local credit union for a $20,000 1-year loan at a 10% interest rate. If the credit union does not approve the loan application, the $20,000 will be invested in bonds that earn a 6% annual return. Without additional information, the credit union believes that there is a 5% chance that this customer will default on the loan, assuming that the loan is approved. If the customer defaults on the loan, the credit union will lose the $20,000.
-Refer to Exhibit 9-2.Suppose that an actual (not perfectly reliable)credit report has the following characteristics based on historical data; in cases where the customer did not default on the approved loan,the probability of receiving a favorable recommendation on the basis of the credit investigation was 80%,while in cases where the customer defaulted on the approved loan,the probability of receiving a favorable recommendation on the basis of the credit investigation was 25%.Given this information,what are the posterior probabilities that default will and will not occur,given the credit report

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Definitions:

Pharmacologic Treatment

The use of medications as a method to treat disease, alleviate symptoms, or prevent further medical complications.

Manic Episodes

Periods of abnormally elevated mood, energy, and activity levels, often seen in bipolar disorder.

Depressive Episodes

Periods marked by persistent feelings of sadness, hopelessness, and a lack of interest or pleasure in activities, often accompanying major depressive disorder.

Zeitgebers

Environmental cues, like light and temperature, that regulate the biological clocks of organisms.