Probability of Mortgage Customers Defaulting on Payments

What is the probability of two out of five customers of a mortgage company defaulting on their payments?

A. 0.0003

B. 0.0082

C. 0.0077

D. 0.0008

Answer:

The question deals with the binomial probability formula. By plugging in the given values into this formula, we can calculate the probability of two out of five selected customers defaulting on their payments. None of the presented options in the question seem to match the calculated probability.

This question involves the use of the binomial probability formula. The default rate of the mortgage company is 3% or 0.03. If we want to find the probability that two out of five selected customers default on their payments, we can use the binomial probability formula: [n choose k] * (p^k) * ((1 - p)^(n - k)), where 'n' is the number of trials (5 in this case), 'k' is the number of successes we're interested in (2 in this case), and 'p' is the probability of success (0.03 in this case). However, based on the given choices, the correct probability does not seem to be listed. The calculation would be [5 choose 2] * (0.03^2) * ((1 - 0.03)^(5 - 2)) = 0.00116.