A particular bank has two loan modification programs for distressed borrowers: Home Affordable Modification Program (HAMP) modifications, where the federal government pays the bank $1,000 for each successful modification, and non-HAMP modifications, where the bank does not receive a bonus from the federal government. To qualify for a HAMP modification, borrowers must meet a set of financial suitability criteria. What type of hypothesis test should we use to test whether borrowers from this particular bank who receive HAMP modifications are more likely to re-default than those who receive non-HAMP modifications? A) A hypothesis test for p₁ - p₂. B) A hypothesis test for µ₁ - µ₂. C) A matched-pairs hypothesis test. D) We are unable to conduct a hypothesis test because independent random samples of each group could not be collected.

Question

Quizplus · Accepted Answer

We should use a hypothesis test for p1 - p2 because we are comparing the proportions of borrowers who re-default in two independent groups: those with HAMP modifications and those with non-HAMP modifications.

A Particular Bank Has Two Loan Modification Programs for Distressed