Givien a customer missed a monthly payment compute the

Reference no: EM13640899

A local bank reviewed its credit card policy with the intention of recalling some of its credit cards. in the past 5% of cardholders defaulted, leaving the bank unable to collect the outstanding balance. Hence managment established a prior probability of .05 that any particular cardholder will default. The bank also found that the probability of missing a monthly payment is.20 for customers who do not default.of course the probality of missing a monthly payment for those who default is 1.

A) Givien a customer missed a monthly payment, compute the posterior probability that the customer will default?

B) The bank would like to recallits credit card i the probability that a customer will default is greater than .20. should the bank recall its card if the customer misses a payment? why or why not?

Reference no: EM13640899

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