Question

In: Statistics and Probability

Scenario. Bank X provides home loan service to their retail customers and charge a interest rate...

Scenario. Bank X provides home loan service to their retail customers and charge a interest rate for their service. Due to market fluctuations, Bank X only offers floating interest rate (FIR) for their home loan customers. A friend of you who works as a banker at Bank X told you that the average yearly FIR in the last thirty years follows a Normal distribution with mean 3.2% (i.e., μ = 0.032) and standard deviation 0.04 (i.e., σ = 0.04). In addition, a sample of size 10 (drawn from N(0.032, 0.0016)) is available to you which has been summaried in the table below
-0.021 0.029 -0.009 -0.002 0.002 -0.006 0.006 -0.064 0.023 0.031 Table 1: A sample of FIR
Your friend seek help from you to use your knowledge from TSTA602 to assist Bank X to do the following data analysis. Please write a report to answer all the following questions.
(a). calculate (mannually) the sample mean, and sample standard de- viation for the sample in Table 1.
(b). if we draw samples of sizes 10 many times and form a distribution of sample mean, state the distribution of the sample mean and provide the reason for your conclusion; calculate the mean of the sample means and its standard deviation.
(c). based on (b), find the probability that the sample mean is smaller than 0.02. Please keep two decimal places in the calculation of standardization.
(d). if the sample mean from (a) is your observed value, calculate the 95% confidence interval for the sample mean.
(e). An outlier is a data point outside the interval [Q1 − 1.5IQR, Q3 + 1.5IQR], where Q1 and Q3 are first and third quartile respectively, and IQR
1

is the interquartile range. Explain whether there is any outlier appears in the sample in Table 1? You can calculate Q1 and Q3, and IQR using R (in Rstudio).
(f). Use R (in Rstudio) to generate 1,000,000 samples of size 10 from N(0.032, 0.0016) (please set the seed equals to 602), compute the sample mean for each of these samples, draw a histgram (set the frequency parameter to FALSE) for these sample means and add a density curve to the histgram. Please provide the histgram with the density curve here and attach your R code as appendix.

Solutions

Expert Solution

Note : Allowed to solve only 4 questions in one post.
a. Mean and standard deviation of the sample

b. The distribution of the mean will be normal.
The mean of the sample mean = 0.032
the standard deviation =

The reason for this is the central limit theroem which states that If we repeatedly take a large number of the sample of size n, then the distribution of the sample means will be normally distributed and the mean of the this distributed will be equal to the population mean. As the sample size increase, the sampling distributed tends more to the normal distribution, irrespective of the shape of the population distribution.

c. Probability of less than 0.02

d. 95% confidence interval


Related Solutions

You have a home loan of $150,000. The interest rate is 5.5% and the loan is...
You have a home loan of $150,000. The interest rate is 5.5% and the loan is for 30 years, with monthly payments. If you make a ONE TIME extra principle payment of $22,000 in period number 18, how much do you SAVE in total interest paid of the life of the loan? A. $22,000 B. $48,814 C. $35,712 D. $61,492
What is the capital charge factor for a loan with an interest rate of 7% for...
What is the capital charge factor for a loan with an interest rate of 7% for 25 years? Make sure to answer to at least three significant figures .
As a bank loan officer, you are now in charge of setting interest rates for short...
As a bank loan officer, you are now in charge of setting interest rates for short term loans. A customer comes in asking for a $10,000 loan for 1 year. As a bank, you will not offer a loan in which your real return on investment is at least 3%. You also know the FED is setting its inflation goal for this year at 2%. Assuming you trust the FED will meet its stated goal, what is the minimum nominal...
Question 1 options: The “prime” interest rate is the rate that banks charge their best customers....
Question 1 options: The “prime” interest rate is the rate that banks charge their best customers. Nominal interest rates and inflation rates are given in the following table. Year Prime Interest Rate Inflation Rate 1970 7.9% 5.7% 1974 10.8% 11.0% 1978 9.1% 7.6% 1981 18.9% 10.3% Question 1 options: The “prime” interest rate is the rate that banks charge their best customers. Nominal interest rates and inflation rates are given in the following table. Year Prime Interest Rate Inflation Rate...
You want to take out a $324,000 mortgage (home loan). The interest rate on the loan...
You want to take out a $324,000 mortgage (home loan). The interest rate on the loan is 5.3%, and the loan is for 30 years. Your monthly payments are $1,799.19. How much will still be owed after making payments for 10 years? $__________Round your answers to the nearest dollar. How much will still be owed after making payments for 15 years? $__________ Round your answers to the nearest dollar. How much will still be owed after making payments for 20...
Amy receives a home improvement loan of $10,000. The loan has a nominal interest rate convertible...
Amy receives a home improvement loan of $10,000. The loan has a nominal interest rate convertible monthly of i(12) = 6%. The term of the loan is three years and Amy is expected to make level end-of-month payments, except that she is allowed to miss one payment so long as she then pays higher level payments for the remainder of the three years, so as to have repaid the loan at the end of the three-year period. Suppose Amy misses...
Bank A is offering a loan of $4,000 at 8% interest rate compounded monthly while Bank...
Bank A is offering a loan of $4,000 at 8% interest rate compounded monthly while Bank B is offering $4,000 loan at 7.98% interest rate compounded daily. Which bank should you take the loan from? Choose the correct answer: Bank B as it has a lower effective rate of 8.51% Bank B as it has a lower effective rte of 8.306099% Both banks have same effective rate so it does not matter which bank you borrow from Bank A since...
5. QRS Bank is charging a 12 percent interest rate on a $5,000,000 loan. The bank...
5. QRS Bank is charging a 12 percent interest rate on a $5,000,000 loan. The bank also charged $100,000 in fees to originate the loan. The bank has a cost of funds of 8 percent. The borrower has a five percent chance of default, and if default occurs, the bank expects to recover 90 percent of the principal and interest. What is the risk of the loan using the Moody's Analytics model? Briefly discuss.
Most banks will charge a ___ interest rate on a $160,000 purchase loan with $200,000 purchase...
Most banks will charge a ___ interest rate on a $160,000 purchase loan with $200,000 purchase price and appraised value than on a $160,000 refinance loan remaining principle on old loan $120,000, with $200,000 appraised value A. Lower B. Higher
a. A bank advertises that customers can borrow money for only 6% interest. However, the loan...
a. A bank advertises that customers can borrow money for only 6% interest. However, the loan would be compounded monthly, so what is the effective interest rate on the loan? Loan Effective Annual Rate = b. A recently purchased bond pays 8% nominal interest, compounded quarterly. What is the effective annual interest rate paid by the bond? Effective Interest Rate = c. Your friend's bank offers a savings account that pays an effective annual interest rate of 6.71%. If your...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT