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CWK 1 DATASET1.csvCreditAccountLengthRecordUseAmountSavingsJobPr.docx
- 14. 14432132221104124379755421323332122110245434746124312 22412221110312409393444121283233121022129118815221423 93213211044841115902322143243122111031219609124211126 12111110118451190112214455333121102212927672541123613 12211102302234412322243211113111023009428023421432631 22111022423309222341232231131210418206761532314368212 31110212231331122311322321311102540915945123314458311 31210124223234124214123311212102152380215431333732132 11024822996012121232612131210424398648122312327122312 10118231345134413126321311101452318451343144233313121 01211016475343122401222211044829484411331233331141210 22709831815221444223241210318232100134322137321311101 45091181615231432931231110162644812421422332131110130 25119981211114341212121024801018424131212232121412201 62014896151314468121412102122227625512122253213121011 22133861533144353313121022423203912141122232131210418 39216913441232832131210248425096132213330321412101182 31882134214325112311101482369991414311343223121041249 22921143123422224121011420897815111424532141220112236 74244411220321311101182097612121232332121110224202718 13321422031121210118267501142111273211111022421125791 54212444331412101182175115513142513313221011840396615 12141331133121011203619913431222831231210124231987132 31412131122110124202303154321145321311104214012680554 31443033141210212236468512311452321412101302263505543 142313213111 CWK DATASET2.xls Sheet1NumberNameValueInterpretation1Credit1Loan repaid0Defaulted1Balance is 02Account2Balance is between 0 and 2003Balance greater than 200 or a regular salary4No account with this bank3LengthLength of the loan in months0No previous loans1All previous loans repaid4Record2Current loans, but all OK3Previous missed payments4Severe problems in the past0New car1Used car2Furniture3Radio or TV4White goods (fridges, etc.)5Use5House repairs6Training
- 15. use7Holiday8Education (fees)9Business10Other6AmountThe amount borrowed1< 1002100 to 5007Savings3500 to 10004> 10005None or unknown1Unemployed2At current job for < 1 year8Job31 year to 4 years44 years to 7 years5> 7 years1Loan is > 35% of annual income225% to 35%9Proportion320% to 25%4< 20%1Divorced man2Divorced woman10Family3Single man4Married man or woman5Single woman or widow1None11Guarantor2Secured on house3Insurance - backed1Lived there < 1 year21 to 4 years12Resident34 to 7 years4> 7 years1Owns house with some land2Leaseholder or secure tenant13Wealth3At least owns a car4No appreciable assets14AgeAge in years1Has other bank loans15Other2No other bank loans, but store cards3Neither of the above1Rents accommodation16Type2Owns a flat3Owns a house11 loan with the bank, i.e. this one22 to 3 loans in all (includes this one)17Past34 or 546 or more1Casual work2Unskilled, but regular18Occupation3Skilled or public servant4Management19Dependents12 or fewer dependents23 or more20Phone1No2Yes, in their name21Guest1Is a "guest worker"2Is not Sheet2 Sheet3 Cwk_Part1_BUIS024_2016-17(4).pdf BUIS024 Given 20/10/16 Portfolio CW Part 1 Due 24/11/16 for intermediate feedback; Final deadline: 9/01/17, 10 am Note: This is the first part of the coursework given in this module and counts for 30% of your final grade. All questions must be answered correctly and the coursework must be returned by the due date above for full credit. All datasets, together with their
- 16. descriptions, can be found in the “Coursework Part 1” folder in the module BlackBoard area. Up to five marks may be given for presentation. Remember that this is meant to be an individual coursework and that any indication that it is otherwise may result in severe penalties. Important: Electronic submission is required via BB by 09/01/2017, 10.00 am. The main report including appendices should be only in ONE file (MS word or pdf); in addition models must be submitted separately in a single ZIP file. In order to obtain initial feedback, please bring a hard copy of your work on 17/11/16 during lecture. Problem 1 (10 marks) An airplane has four engines. On a flight from New York to Paris, each engine has a 0.001 chance of failing. The plane will crash if at any time two or fewer engines are working properly. a) What is the probability that the plane will crash? b) Given that engine 1 will not fail during the flight, what is the probability that the plane will crash? c) Given that engine 1 will fail during the flight, what is the probability that the plane will not crash? State clearly your assumptions and show all working. Problem 2 (10 marks) The daily demand for TVs at TVWorld is normally distributed with mean 400 and standard deviation 100. Each time an order for TVs is placed. It takes exactly 4
- 17. days to arrive, i.e. TV orders have a 4-day lead time. TVWorld does not want to run out of TVs during more than 1% of all lead times. How low should TVWorld let its TV inventory drop before it places an order for more TVs? State clearly your assumptions and show all working. Problem 3 (45 marks) Dataset: credit.csv. The description of the variables is in an excel file named descriptionCreditScoringData.xls. This data set consists of genuine credit records from a South German bank. The aim would generally be to predict which customers will repay the loan in full and which of them will not. There are 1000 records and all amounts are in Deutschmarks. Answer the following using suitable approaches whether descriptive/graphical or inferential and using a suitable package e.g. StatTools. Justify your answers in the main text and include all workings as appendix. a) Wherever possible and meaningful, provide a brief analysis of each variable, including their distribution, outliers, etc. b) Does there seem to be differences in age, length of loan, or amount of loan for those who repaid their loans and those who defaulted? c) Explore and describe the association of each variable with the credit status. d) Does the Length of the loan vary with the use of the loan? e) Determine relationships, if any, between Age, Length of loan and Amount of loan.
- 18. f) Construct a 3-way contingency table from the factors credit, record and use, and analyse it. You must state your final conclusions in detail. BUIS024 Given 20/10/16 Portfolio CW Part 1 Due 24/11/16 for intermediate feedback; Final deadline: 9/01/17, 10 am Problem 4 (30 marks) John Boris, the founder and major stockholder of DataSoft Inc. has just been told by his lawyer, Michael Grove, that Brexoft Computer Software has informed him through their lawyer that Brexoft plans suing DataSoft for copyright infringements by DataSoft's recent database software Easybase Release 1.1. Brexoft claims damage £250,000 and triple punitive penalties of £750,000. Michael Grove also tells John Boris that Brexoft's lawyer has hinted that would be willing to settle out of court by granting DataSoft retroactively a flat-fee licence for using the software in contention for £1,000,000. This would allow DataSoft to continue selling Release 1.1. John Boris estimates that the future revenue potential for Release 1.1 amounts to roughly £1,400,000. If DataSoft chose to defend the law suit and lost, these sales would also be lost. Michael Grove estimates that the cost of defending the law suit will amount to £250,000. If DataSoft wins, Brexoft will have to refund £250,000. However if Datasoft loses, it will have to refund Brexoft the same amount.
- 19. Development of Easybase Release 2.0 has just been started. With its completely new format, it will definitely not risk to infringe copyrights. Its development can also be accelerated. This will allow Release 2.0 to be introduced four or eight months earlier than originally planned, provided it is initiated within a month. The difficulty is that without some preliminary analysis, it is difficult to predict how early Release 2.0 can be introduced. Accelerating will also increase the cost by £100,000 for a four-month early release to £200,000 for an eight-month early release. However DataSoft would recoup about £150,000 of the potential loss on every month of early introduction if they abandon Release 1.1. Both John Boris and Michael Grove also think that Brexoft would be willing to accept an out-of-court settlement for £300,000 in compensation for past copy-right infringements, if DataSoft stopped marketing Release 1.1 by the end of the month. They also think that Brexoft would be willing to accept a licence fee of £625,000 if Release 2.0 is introduced 8 months earlier and £800,000 if it is introduced 4 months earlier. Michael reminds John that he has at most until the end of the month i.e. 2 weeks to make up his mind wether or not to accept an out of court settlement. Brexoft will not consider such settlement once the court case has been initiated. There are two major uncertainties in this situation. What are DataSoft's chances of successfully defending a court case? And, how much earlier can Release 2.0 be marketed if DataSoft decides to accelerate its development? Michael estimates that DataSoft has
- 20. about a 70% chance of winning the case. Prior to a preliminary analysis, the Easybase development leader estimates there is a 60% chance of being able to complete Release 2.0 eight months earlier and a 40% chance of being able to complete it only four months earlier. The development leader suggests that these estimates could be improved by undertaking a preliminary analysis which takes about a week and costs £20,000. This analysis is however not infallible and has a 15% chance to predict a four-months early release when it actually is released eight-months early and a 20% chance to wrongly predict an eight-month early release. John Boris is very confused. Should he do for a preliminary analysis or not? Should he accelerate or not Release 2.0? Should he go to court or not? As Datasoft's only analyst, John Boris asked you to assist him in his decision making process. John Boris also agrees that his main objective is to maximise the expected profit to be made. In order to advise John Boris, you must answer the following questions. Unless otherwise stated the assumptions are the ones above. 1. Draw a decision tree skeleton. Show all relevant monetary values and probabilities. BUIS024 Given 20/10/16 Portfolio CW Part 1 Due 24/11/16 for intermediate feedback; Final deadline: 9/01/17, 10 am
- 21. 2. Build a spreadsheet model based on your decision tree using Precision Tree and solve the tree. You must include a copy of your spreadsheet showing all the formulae and a short report explaining the formulae. 3. What is the highest price that management should pay for the preliminary analysis with its current performance? What is the highest price that management should pay for any preliminary analysis regardless of its performance? Explain. 4. Carry out a complete sensitivity analysis on the probability of being able to complete Release 2.0 eight months earlier (currently 0.6). You may use increments of 0.05. Explain. 5. Carry out a complete sensitivity analysis on both counter- performance probabilities of the preliminary analysis. Explain. 6. Other uncertainties are the future revenue potential for Release 1.1 initially estimated at £1,500,000 and the chance of winning the case initially estimated at 70%. Revise the decision as the revenue for Release 1.1 varies from £1,000,000 to £2,000,000 and the chance of winning the case varies from 50% to 90%. Explain. 7. Summarise all your recommendations in a short management report (no more than one typed A4 page). Remember that management has no knowledge of decision analysis therefore your report should be as non-technical and as clear as possible.