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Question 8 [11 marks) Financial statements produced by company's are sometimes fraudulently manipulated. This is called financial statement fraud and it is a costly problem
Question 8 [11 marks) Financial statements produced by company's are sometimes fraudulently manipulated. This is called financial statement fraud and it is a costly problem for society. Some studies estimate that 4% of all financial statements are fraudulent. In an attempt to mitigate this problem, Adrian has developed a new model that correctly detects fraud 95% of the time and correctly detects legitimate statements 92% of the time. To help users of Adrian's model to better understand its accuracy answer the following questions. a) When Adrian's model detects fraud, how likely is the model to be correct? [6 marks) b) When Adrian's model says the statement is legitimate, how likely is the model to be correct? [3 marks] c) Briefly comment on the usefulness of the model [2 marks]
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