A bank finds that the relationship between mortgage defaults and the size of the down payment is given by the table.
Down Payment (%) 5% 10% 20% 25%
# of mortgages w/ this down payment 1260 700 560 280
Probability of Default .05 .03 .02 .01
If a default occurs, what is the probability that it is on a mortgage with a 5% down payment? Use Bayes' Formula to solve this problem.
The work that I have done so far:
I created a tree diagram; the left part of the diagram has four branches (one for each of the four levels of down-payment). Then I split each of the four branches into two branches one for default and the other for no default.
Down Payment (%) 5% 10% 20% 25%
# of mortgages w/ this down payment 1260 700 560 280
Probability of Default .05 .03 .02 .01
If a default occurs, what is the probability that it is on a mortgage with a 5% down payment? Use Bayes' Formula to solve this problem.
The work that I have done so far:
I created a tree diagram; the left part of the diagram has four branches (one for each of the four levels of down-payment). Then I split each of the four branches into two branches one for default and the other for no default.
