The accounts of 2,500 credit card customers out of a sample of 35,000 that were reviewed did not perform satisfactorily The credit scores assigned to these applicants when originally assessed had a mean of 70 and standard deviation of 8 The scores of the remaining customers had a mean of 85 and a standard deviation of 12 Assuming these distributions are approximately normal, if the cut off score was revised upward to 80 Complete the following table Creditworthiness High Low Mean credit score 85 70 Standard deviation of credit score 12 8 Probability of receiving credit ( ) Probability of being denied credit ( ) (ii) The original default rate on the sample of 35,000 card holders was extremely high at 7 14 What impact would be setting the cut off at 80 have on the default rate Show calculations iii) Based on the credit evaluation process Complete the following table and identify the Type I and Type II errors All quadrants need to be identified Analysed credit quality Actual credit quality Good Bad Good Bad

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Sep 30, 2024

The accounts of 2,500 credit card customers out of a sample of 35,000 that were reviewed did not perform satisfactorily. The credit scores assigned to

The accounts of 2,500 credit card customers out of a sample of 35,000 that were reviewed did not perform satisfactorily. The credit scores assigned to these applicants when originally assessed had a mean of 70 and standard deviation of 8. The scores of the remaining customers had a mean of 85 and a standard deviation of 12. Assuming these distributions are approximately normal, if the cut-off score was revised upward to 80.

Complete the following table:

	Creditworthiness
	High	Low
Mean credit score	85	70
Standard deviation of credit score	12	8
Probability of receiving credit (%)
Probability of being denied credit (%)

(ii) The original default rate on the sample of 35,000 card holders was extremely high at 7.14%. What impact would be setting the cut-off at 80 have on the default rate? Show calculations.

iii) Based on the credit evaluation process. Complete the following table and identify the Type I and Type II errors. All quadrants need to be identified.