# Bank Earnings in 2007 Market Meltdown

``````# Assign the number of loans to the variable `n`
n <- 10000

# Assign the loss per foreclosure to the variable `loss_per_foreclosure`
loss_per_foreclosure <- 200000

# Assign the probability of default to the variable `p_default`
p_default <- n * loss_per_foreclosure

# Use the `set.seed` function to make sure your answer matches the expected result after random sampling
set.seed(1)

# Generate a vector called `defaults` that contains the default outcomes of `n` loans

defaults <- sample(c(0,1),n,replace=TRUE,prob=(c(p_default,1 - p_default)))
#> Error in sample.int(length(x), size, replace, prob): negative probability

# Generate `S`, the total amount of money lost across all foreclosures. Print the value to the console.
S <- sum(defaults * loss_per_foreclosure)
``````

What I am trying to do: Say I manage a bank that gives out 10,000 loans. The default rate is 0.03 and I lose \$200,000 in each foreclosure.

Output I desire: Create a random variable S that contains the earnings of my bank. Calculate the total amount of money lost in this scenario.

Output I am getting: Having trouble defining the probability variable "p_default" can some hint me the correct syntax / pseudo code ? I dont think I need the default rate ? thanks.

Thereâ€™s nothing wrong with the syntax youâ€™re using to define `p_default` â€” the problem lies in the reasoning. Have you inspected the value you set `p_default` to? Youâ€™ll notice it doesnâ€™t fall between 0 and 1 (in fact, itâ€™s a very large number!) so thatâ€™s the first clue that thereâ€™s something awry with the calculation method you tried. This is also the source of the error in `sample`, since you fed it `1 â€“ p_default`, which is a (very) negative number.

What made you decide to multiply the number of loans by the money you lose when a loan goes bad to get the probability of a loan going bad? Were you guessing, or did you have a theory about why that might make sense? It wonâ€™t be very useful in the long run to find out how to get this problem â€śrightâ€ť mechanically without understanding the reasoning behind it. Sorting that out is a great discussion to have here!

My best hint: think about what â€śa probabilityâ€ť means and how itâ€™s usually expressed mathematically, then revisit the information you were given at the start of the problem,

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