Southside College Has Modeled Its Student Loan Program as a Markov

question 13

Short Answer

Southside College has modeled its student loan program as a Markov process.Each year a student with a prior loan borrows again,defers repayment for a year,makes payments,pays the loan balance in full,or defaults on repayment.The transition matrix is as follows:
a. If currently a student is making payments on his/her loan, what is the probability the loan will be paid in full eventually?
b. Is the probability of eventually defaulting greater for a student who is currently borrowing more or a student who is making payments?
c. What is the probability a student who is borrowing this year will repay the loan balance in full in two years or less?

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Definitions:

Regression Model

A statistical technique that models and approximates the relationship between a dependent variable and one or more independent variables.

Multicollinearity

A statistical phenomenon in which two or more predictor variables in a multiple regression model are highly correlated, potentially distorting the results.

Standard Errors

Measures that provide an estimation of the sampling variation, usually referring to the standard deviation of the sample mean's distribution or other parameter estimates.

Slope Coefficients

In linear regression, these coefficients represent the degree of change in the dependent variable for a one-unit change in an independent variable.