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 for the population means. D) A matched-pairs hypothesis test for the population proportions.

Question

Quizplus · Accepted Answer

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

A Particular Bank Has Two Loan Modification Programs for Distressed