Question

In: Statistics and Probability

I see the mathematical formula to solve: Now we have a new borrower, with 5.2 credit...

I see the mathematical formula to solve: Now we have a new borrower, with 5.2 credit score and 3.1 net worth. Would you classify the new borrow into the Good standing class or the Default class? I am trying to write an excel formula for this but the instructions and coursework do not show how to do this. Any help would be appreciated.

From the history, we know the following.
There are two classes: Good Standing and Default
Credit Score Net Worth Loan Outcome
5.1 2.5 Good Standing
5.1 3.3 Good Standing
5.1 3.8 Good Standing
5.3 3.7 Good Standing
5.4 3.4 Good Standing
5.4 3.9 Good Standing
5.5 2.4 Good Standing
5.8 2.8 Default
6 2.7 Good Standing
6.1 2.8 Good Standing
6.3 2.3 Good Standing
6.3 2.5 Good Standing
7.2 3 Defaulted
7.3 2.9 Default
7.4 2.8 Default
Now we have a new borrower, with 5.2 credit score and 3.1 net worth. Would you classify the new borrow into the Good standing class or the Default class?
Show your calculation.

Solutions

Expert Solution

To solve given problem we use nearest neighbourhood distance method. Here first understand these method. It is easy to understand.

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