A customer has approached a local credit union for a 20,000 1-year loan at a 10 interest rate. If ...

A customer has approached a local credit union for a 20,000 1-year loan at a 10 interest rate. If the credit union does not approve the loan application, the 20,000 will be invested in bonds that earn a 6 annual return. Without additional information, the credit union believes that there is a 5 chance that this customer will default on the loan, assuming that the loan is approved. If the customer defaults on the loan, the credit union will lose the 20,000.
Suppose that an actual (not perfectly reliable) credit report has the following characteristics based on historical data; in cases where the customer did not default on the approved loan, the probability of receiving a favorable recommendation on the basis of the credit investigation was 80, while in cases where the customer defaulted on the approved loan, the probability of receiving a favorable recommendation on the basis of the credit investigation was 25. Given this information, what are the posterior probabilities that an earthquake will and will not occur, given the geologists predictions?

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A customer has approached a local credit union for a 20,000 1-year loan at a 10 interest rate. If ...

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