Mortgages. In early 2007 the Mortgage Lenders Association reported that homeowners, hit hard by rising interest rates on adjustable-rate mortgages, were default- ing in record numbers. The foreclosure rate of 1.6% meant that millions of families were in jeopardy of losing their homes. Suppose a large bank holds 1731 adjustable-rate mortgages.
a) Can you use the Normal model to describe the sampling distribution model for the sample proportion of foreclo- sures? Check the conditions and discuss any assumptions you need to make.
b) Sketch and clearly label the sampling model, based on the 68-95-99.7 Rule.
c) How many of these homeowners might the bank expect will default on their mortgages? Explain.