A mortgage company knows that 8% of its loan recipients default within the first five years. To be profitable the company must have no more than 25 out of the next 350 loans default. What is the probability of the company being able to show a profit on the next 350 loans.

Hi pla,

The probability of the company being able to show a profit is binomial(350, 0.08). You can use normal distribution to approximate the binomial probability. To do that, you first calculate the mean and d using binomial, then apply central limit theorem.

Can you explain a little more?

Would n = 350 and p = .08?

Yes, and mean=n*p, sd=n*p*(1-p)

I did what was posted to solve this...did the binomial in Excel...I got .06888.
Do I need to do anything additional?