QUESTION 14 As accounts manager in your company, you classify 75% of your custom

Question

QUESTION 14 As accounts manager in your company, you classify 75% of your customers as ood crear and the rest as nsky erede depending on ther creat at Gven that a customer fals in the risky-category about 50% of the tr e on average, their accounts become overdue. Those n the g or cal y alow their accounts to become overdue only 10% of the time Suppose the you find that an account is overdue. Given that fact, what is the probabity that the customer would have been classfhed in Trsky credr category? Hint: it might be helpful to sketch a probability tree. 0.20 0.125 0.9375 O 0625

Explanation / Answer

P(G) = 0.75
P(R) = 0.25

P(O|R) = 0.5
P(O|G) = 0.1

P(R and O) = P(O|R)*P(R) =0.5*0.25 = 0.125
P(G and O) = P(O|G)*P(G) =0.1*0.75 = 0.075

P(O) = P(R and O) + P(G and O) = 0.2

P(R|O) = P(R and O)/P(O) = 0.125/0.2 = 0.625

Option D

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