Question
You are an economist at a local bank and your task is to review its credit card policy so that your bank can recall some
You are an economist at a local bank and your task is to review its credit card policy so that your bank can recall some of its credit cards. Historical data shows that approximately 5% of cardholders defaulted. As a consequence, your bank was unable to collect the outstanding balance. Given this information, the management established a prior probability of 0.05 that any particular cardholder will default. Also, based on the historical data, the probability of missing a monthly payment for customers who do not default is .20. Of course, those who defaulted has a 100% probability of missing a monthly payment.
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