Find probability that a customer with two late payments

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Reference no: EM13911907

A department store is considering a new credit policy to try to reduce the number of customers de- faulting on payments. A suggestion is made to discontinue credit to any customer who has been one week or more late with his/her payment at least twice. Past records show 95 percent of defaults were late at least twice. Also, 3 percent of all customers default, and 30 percent of those who have not defaulted have had at least two late payments.

a. Find the probability that a customer with at least two late payments will default.

b. Based on part a, should the policy be adopted? Explain.

Reference no: EM13911907

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