Solved: An individual’s credit score is a number

Chapter 4, Problem 127E

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Problem 127E

An individual’s credit score is a number calculated based on

that person’s credit history that helps a lender determine how much he/she should be loaned or what credit limit should be established for a credit card. An article in the Los Angeles Times gave data which suggested that a beta distribution with parameters A = 150, B = 850, α = 8, β = 2 would provide a reasonable approximation to the distribution of American credit scores. [Note: credit scores are integer-valued].

a. Let X represent a randomly selected American credit score. What are the mean value and standard deviation of this random variable? What is the probability that X is within 1 standard deviation of its mean value?

b. What is the approximate probability that a randomly selected score will exceed 750 (which lenders consider a very good score)?