Suppose the probability of default on a loan is 006 and the

Suppose the probability of default on a loan is 0.06, and the proportion of loans given to people with poor credit is 0.19. If these two outcomes are independent events, then what is the probability of default if a loan is given to someone with poor credit? Provide your answer in decimal form and round to three decimal places.

Solution

Given Pr[default on a loan] =P(D) = 0.06

Pr[with poor credit] = P (C) = 0.19

if these two events are independent then

Pr[default if a loan is given to someone with poor credit] = P(D)*P(C) = 0.06*0.19 = 0.0114