Case Study Challenge
Probability in Banking & Finance
A bank offers loans to its customers on different types of interest namely, fixed rate, floating rate and variable rate.
From the past data with the bank, it is known that a customer avails loan on fixed rate, floating rate or variable rate with probabilities 10%, 20% and 70% respectively.
A customer after availing loan can pay the loan or default on loan repayment. The bank data suggests that the probability that a person defaults on loan after availing it at fixed rate, floating rate and variable rate is 5%, 3% and 1% respectively.
Answer the following:
| (i) | What is the probability that a customer after availing the loan will default on the loan repayment? | [2 Marks] |
| (ii) | A customer after availing the loan, defaults on loan repayment. What is the probability that he availed the loan at a variable rate of interest? | [2 Marks] |