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Introduction to Quantitative Methods II
Summer 2021
Assignment #5
This final assignment focuses on Chapter 9, especially trees, as well as the start of Chapter 11. You
should look at the practice problems for Chapter 9 to get ideas on how to construct probability trees. In
this assignment, the trees extend to three levels of branching, rather than just 2 levels.
Stonehurst Credit Union (SCU) is trying to identify clients who are likely to get into financial difficulty and
default on their loans. Their goal is to intervene early, before the debt situation gets out of control, so
that not only do they limit their exposure to losses, but they may be able to salvage their relationship
with a member (credit unions are owned by their members).
One of the first indicators of a deteriorating debt situation is a missed loan payment. That is, a payment
was due on a certain date, but no payment was received on that date or during the subsequent weeks.
Missed credit card loan payments occur 6% of the time.
SCU has examined the records of over 1,000 customers over the last 2 years to examine the amount
owing on their credit cards. Among those that missed last month’s payment, the balance owing was
over $3,000 for 60% of them. But, among those who made their payment on time, only 15% owed more
than $3,000.
Among those with a balance over $3,000 and who missed their last payment, 80% paid less than 20% of
the balance owing, the previous month. Among those owing less than $3,000 and who missed their last
payment, 40% paid less than 20% of the balance owing.
Among those with a balance over $3,000...