Four percent of the customers of a mortgage company default on their payments. A sample of five customers is selected. What is the probability that exactly two customers in the sample will default on their payments?
A) .2592
B) .0142
C) .9588
D) .7408

Question

Quizplus · Accepted Answer

The problem can be solved using the binomial distribution formula, with n = 5 (sample size), p = 0.04 (probability of default), and x = 2 (number of defaults):

P(x=2) = (5 choose 2)*(0.04)^2*(1-0.04)^3 = 0.0142

Therefore, the probability that exactly two customers in the sample will default on their payments is 0.0142, which corresponds to choice (B).

Four Percent of the Customers of a Mortgage Company Default