Question

5. Probability relationships Aa Aa A mortgage is a loan that the borrower uses to finance the purchase of a home. There are two basic types of mortgage loans: the fixed-rate mortgage and the adjustable-rate mortgage (ARM). For the purposes of this problem, assume that all mortgages are either fixed-rate or adjustable-rate Apart from the classification of a mortgage as fixed-rate or adjustable-rate, conventional mortgage loans (loans that are not government-insured) are categorized as prime or subprime. A subprime mortgage is made to a borrower who is perceived as a high credit risk. For the purposes of this problem, assume that all conventional mortgages are either prime or subprime Note: For the rest of this problem, the term "mortgage" refers to a loan that is not government-insured (a conventional mortgage) Consider this experiment: A mortgage is randomly selected and categorized as prime or subprime and as fixed-rate or adjustable-rate A the event that the mortgage has an adjustable rate F the event that the mortgage has a fixed rate P = the event that the mortgage is prime the event that the mortgage is subprime S Now consider events S and F. Which of the following Venn diagrams most accurately shows how events S and F are related to the sample space? Event S Event F Event S Event F Event S Event F Diagram 1 Diagram 2 Diagram 3 O Diagram 1 Diagram Diagram 3 Are events S and F mutually exclusive? O No Q Yes

Answer 1