Question

which of the following best describes conditional probability and its application in risk assessment of home mortgage customers? a. the annual income of a customer does not affect the risk of default on their mortgage. b. the probability of a home mortgage customer defaulting on their mortgage does not change based on related events. c. conditional probability is the probability of an event a occurring given the occurrence of another related event b. d. conditional probability is not used in risk assessment of home mortgage customers.

Explanation:

Conditional probability is defined as the probability of an event A occurring given that another related event B has occurred. In the context of home - mortgage customer risk assessment, various factors (related events) can influence the probability of default (event A). Option a is incorrect as income can affect default risk. Option b is wrong because the probability of default can change based on related events. Option d is incorrect as conditional probability is indeed used in risk assessment.

Answer:

C. Conditional probability is the probability of an event A occurring given the occurrence of another related event B.