Reference no: EM132851028

At a financial institution, a fraud detection system identifies suspicious transactions and sends them to a specialist for review. The specialist reviews the transaction, the customer profile, and past history. If there is sufficient evidence of fraud, the transaction is blocked. Based on past history, the specialist blocks 40 percent of the suspicious transactions. Assume a suspicious transaction is independent of other suspicious transactions.

(a) Suppose the specialist will review 136 suspicious transactions in one day. What is the expected number of blocked transactions by the specialist? Show your work.

(b) Suppose the specialist wants to know the number of suspicious transactions that will need to be reviewed until reaching the first transaction that will be blocked.

(i) Define the random variable of interest and state how the variable is distributed (binomial or geometric).

(ii) Determine the expected value of the random variable and interpret the expected value in context.

(c) Consider a batch of 10 randomly selected suspicious transactions. Suppose the specialist wants to know the probability that 2 of the transactions will be blocked.

(i) Define the random variable of interest and state how the variable is distributed (binomial or geometric).

(ii) Find the probability that 2 transactions in the batch will be blocked. Show your work.