TD Canada Trust discovers that the estimated proportion of clients defaulting on

e1s2kat26

e1s2kat26

Answered question

2021-09-10

TD Canada Trust discovers that the estimated proportion of clients defaulting on a loan, if the interest rate is lower than15% , is 0.34. They also discover that the estimated proportion of clients defaulting on a loan, given the interest is greater than or equal to 15% , is 0.52.
a) What is the odds ratio of defaulting given the interest rate is greater than or equal to 15% relative to the interest rate is lower than 15%? Interpret this odds ratio.
b) If we were to analyze this data using the following logistic regression model, what are the estimates of β0 and β1? Showyourwork.
llog(p1p)=β0+β1x
(Where p is the probability of defaulting on a loan and x is an indicator variable that is 1 when the interest rate is greater than or equal to 15% and 0 when the interest rate is less than 15%)

Answer & Explanation

unett

unett

Skilled2021-09-11Added 119 answers

Here estimated proportion of clients defaulting on a loan, given the interest rate is below 15%=0.34
estimated proportion of clients defaulting on a loan, given the interest rate is greater than or equal to 15%=0.52
Odds Ratio = p1p2=0.520.34=1.529
Here the odds ratio is 1.529 that means there is 1.529 times more chance of default interest rate is greater than or equal to 15% than when it is less than 15%.

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