A Particular Bank Has Two Loan Modification Programs for Distressed

question 82

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. Define the null and alternative hypotheses to test whether borrowers who receive HAMP modifications default less than borrowers who receive non-HAMP modifications. Let p₁ and p₂ represent the proportion of borrowers who received HAMP and non-HAMP modifications that did not re-default, respectively.

• A) H₀: p₁ - p₂ ≤ 0, H_A: p₁ - p₂ > 0
• B) H₀: p₁ - p₂ ≥ 0, H_A: p₁ - p₂ < 0
• C) H₀: p₁ - p₂ = 0, H_A: p₁ - p₂ ≠ 0
• D) H₀: p₁ - p₂ > 0, H_A: p₁ - p₂ ≤ 0

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Definitions:

Leverage Ratios

Financial metrics that assess the degree of a company's reliance on borrowed money in its operations.

Profitability Ratios

Financial ratios that are used to measure the ability of a company to turn sales into profits and to earn profits on assets and owner’s equity committed.

Primary Financial Records

Essential documents that record and detail the financial activities and condition of a business or individual, such as income statements, balance sheets, and cash flow statements.

Benchmarking

The process of comparing one's business processes and performance metrics to industry bests or best practices from other industries.