The credit manager for a local department store discovers that 88% of all the store's credit card holders who defaulted on their payments were late (by a week or more) with two or more of their monthly payments before failing to pay entirely (defaulting). This prompts the manager to suggest that future credit be denied to any customer who is late with two monthly payments. Further study shows that 3% of all credit customers default on their payments and 40% of those who have not defaulted have had at least two late monthly payments in the past.
1)What is the probability that a customer who has two or more late payments will default?
The probability is,
A. 0.88
B. 0.03
C. 0.0637
D. 0.0341
2) Under the credit manager's policy, in a group of 100 customers who have their future credit denied, how many would we expect not to default on their payments?
3) Does the credit manager's policy seem reasonable? Explain your response.