American property bubble-SOF
The bursting of the American property bubble showed that a rapid rise in home prices and household debt,
built on a foundation of low interest rates and easy mortgages, could be a toxic combination. When the
boom ended, it left a legacy of failed banks, foreclosed homes, recession and government debt.
Given the situation, the Maritime Community Bank (MCB) wanted to evaluate its mortgage/loan policies,
and randomly selected 500 recent loan/mortgage applicants. In the table below, the data is classified
according to their credit rating--excellent (E), good (G), fair (F) or poor (P)--and their place of residence--
Metro region (M), Cape Breton (C), or Western NS (W).
Place of Credit Rating
Place of Credit Rating
Residence E G F P Total
M 70 100 65 45 280
C 24 42 20 14 100
W 28 72 8 12 120
Total 122 214 93 71 500
1. a) What proportion of loan applicants from the Metro region has a "better-than-fair" credit rating? b) What proportion of loan applicants with a “better-than-fair” credit rating is from the Metro region? c) Are the events "better-than-fair" and "from the Metro region" mutually exclusive? Why? d) Are the events "better-than-fair" and "from the Metro region" independent?
7 years ago
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- Americanpropertybubble-SOF.doc