you will see the captured rates(CAP1,CAP2 and CAP3) and the cumulative captured
ID: 2656946 • Letter: Y
Question
you will see the captured rates(CAP1,CAP2 and CAP3) and the cumulative captured rates(CAPC1, CAPC2,CAPC3) for the three models as shown, using the following table please answer the following question.
CAP CAPC DECILE odel2 CAP2 CAPC2 CAPC3 Tree2 Tree Tree Tree Tree Tree 36.0127 10.7334 9.8923 9.5102 4.3919 4.3919 36.013 46.746 56.638 33.519 46.930 57.790 66.081 33.8235 9.9815 7. 5835 9.6597 8.5526 4.5577 3.6942 3.5062 3.5062 3.5062 3.5397 1.3984 0.8444 0.8444 0.8444 0.8444 0.8444 0.8444 0.8444 33.824 Tree3 43.805 Tree3 51.389 Tree3 61.048 Tree3 69.601 Tree3 74.159 Tree3 77.853 Tree3 81.359 Tree3 84.865 Tree3 88.371 Tree3 91.911 Tree3 93.310 Tree3 94.154 Tree3 94.998 Tree3 95.843 Tree3 96.687 Tree3 97.532 Tree3 98.376 Tree3 99.22 Tree3 0.7795 100.000 Tree3 33.5186 13.4114 10.8603 8.2907 4.3919 4.3919 3.2093 3.3387 3.3387 3.3387 2.4962 1.0460 1.0460 1.0460 1.0460 1.0460 1.0460 1.0460 1.0460 Tree2 Tree2 74.865 78.074 81.413 84. 751 88.090 90.586 91.632 92.678 93.724 94.770 95.816 96.862 97.908 98.954 1.0460 100.000 74.932 78.074 81.413 84.751 Tree Tree Tree2 Tree2 Tree2 3.3387 3.3387 3.3387 2. 4962 1.0460 1.0460 1.0460 1.0460 1.0460 1.0460 1.0460 1.0460 1.0460 8 Tree Tree2 91.632 92.678 93.724 94.770 95.816 96.862 97.908 98.954 100.000 Tree Tree2 Tree2 Tree2 Tree Tree Tree2 Tree2 Tree2Explanation / Answer
Tree 1 is better than the other trees, as major portion gets recovered in the starting years. Although cumulative value in year 4 of "Tree 3" exceeds that of "Tree 1", by obs. 3, the difference is significantly low and will get set off when present value is computed as Tree1 has a much higher value in obs 1 compared to Tree3.
You need to think of this sum as receiving cash flows in the % given. Higher the present value, better the tree.
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