Business, 14.10.2020 18:01 kevinh2683

A local bank reviewed its credit card policy with the intention of recalling some of its credit cards. In the past approximately 8% of cardholders defaulted, leaving the bank unable to collect the outstanding balance. Hence, management established a prior probability of 0.08 that any particular cardholder will default. The bank also found that the probability of missing a monthly payment is 0.20 for customers who do not default. Of course, the probability of missing a monthly payment for those who default is 1. a. Given that a customer missed monthly payments, compute the posterior probability that the customer will default (to 3 decimals).

b. The bank would like to recall its credit card if the probability that a customer will default is greater than 0.20. Should the bank recall its credit card if the customer misses a monthly payment? Why or why not?

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A local bank reviewed its credit card policy with the intention of recalling some of its credit card...

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