A Particular Bank Has Two Loan Modification Programs for Distressed

question 121

Multiple Choice

A particular bank has two loan modification programs for distressed borrowers: Home Affordable Modification Program (HAMP) modifications, where the federal government pays the bank $1,000 for each successful modification, and non-HAMP modifications, where the bank does not receive a bonus from the federal government. To qualify for a HAMP modification, borrowers must meet a set of financial suitability criteria. What type of hypothesis test should we use to test whether borrowers from this particular bank who receive HAMP modifications are more likely to re-default than those who receive non-HAMP modifications?

• A) A hypothesis test for p₁ - p₂.
• B) A hypothesis test for µ₁ - µ₂.
• C) A matched-pairs hypothesis test.
• D) We are unable to conduct a hypothesis test because independent random samples of each group could not be collected.

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Definitions:

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Dishonest dealing, failing to meet obligations, or violating standards of honesty in transactions.

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The failure by either the insurer or the insured to fulfill their contractual obligations under the terms of an insurance policy.