Suppose that an insurance agent for Retro Insurance claims that less than 20% of

Question

Suppose that an insurance agent for Retro Insurance claims that less than 20% of his life insurance policies ever have to "pay out". You decide to test his claim at the = 0.02 significance level. A sample of 75 policies from last year finds that 4 of them had to pay out.

If the hypotheses are:

Ho: p is great than or equal to 0.20

H1: p is less than 0.20

With a critical value of -2.05, compute the sample statistic then choose the appropriate conclusion:

a) We cannot reject Ho, thus it may be that at least 20% of the policies pay out

b)We reject Ho, thus less than 20% of the policies pay out

Explanation / Answer

Ho: p is equal to 0.20 it's never or greater than, since it's not a random variable. I get P value of .0208. It's slightly higher than 2% so a) We cannot reject Ho, thus it may be that at least 20% of the policies pay out

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