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Answer: 89%
D is correct. In order to solve this conditional probability question, first calculate the probability that any one mortgage in the portfolio is late. This is: P(Mortgage is late) = (500+64)/(2500+800) = 17.1%. Next, use the conditional probability relationship as follows: P(Subprime mortgage|Mortgage is late) = P(Subprime mortgage and late)/P(Mortgage is late) Since P(Subprime mortgage and late) = 500/3300 = 15.2%, then P(Subprime mortgage I Mortgage is late) = 15.2% / 17.1% = 0.89 = 89%. Hence the probability that a random late mortgage selected from this portfolio turns out to be subprime is 89%.
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A financial analyst is examining a mixed portfolio that includes 2,500 subprime mortgages and 800 prime mortgages. In this portfolio, it has been observed that 500 subprime mortgages and 64 prime mortgages have overdue payments. Given these details, calculate the probability that a mortgage randomly selected from the overdue ones in this portfolio is a subprime mortgage.
A
60%
B
67%
C
75%
D
89%
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