Exhibit 17

question 28

Short Answer

Exhibit 17.9.A bank manager is interested in assigning a rating to the holders of credit cards issued by her bank.The rating is based on the probability of defaulting on credit cards and is as follows. To estimate this probability,she decided to use the logistic model: ,
where,
y = a binary response variable with value 1 corresponding to a default,and 0 to a no default,
x₁ = the ratio of the credit card balance to the credit card limit (in percent),
x₂ = the ratio of the total debt to the annual income (in percent).
Using Minitab on the sample data,she arrived at the following estimates: Note: The p-values of the corresponding tests are shown in parentheses below the estimated coefficients.
(Using Excel)Refer to Exhibit 17.9.Suppose that only applicants with excellent and good ratings are qualified for a loan.Assume that the balance ratio,x₁,of those who apply is normally distributed with μ₁ = 18% and σ₂ = 6%,while their debt ratio,x₂,is normally distributed with μ₂ = 30% and σ₂ = 8%.Because of limited capabilities of Excel,assume also that x₁ and x₂ are independent.Using Random Number Generator in Data Analysis of Excel,simulate 1000 applications to estimate the percent of those that are qualified for a loan.

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