An insurance company recorded the mean damage for a natural disaster in its area

Question

An insurance company recorded the mean damage for a natural disaster in its area was $520. After introducing several plans to prevent loss, it randomly samples 49 policyholders and finds the mean amount per claim was $505 with a standard deviation of $70. Use alpha = .05, can we concluded the prevention plans were effective in reducing the mean amount of claim? a. State the null and alternative hypotheses. H_0: H_1: b. What is the critical value of the test? c. What is the decision rule? d Using the critical value approach, state your decision regarding H_0.

Explanation / Answer

Answer to the questions below:

a.

Ho:Mu>500
Ha:Mu<=500

b. Zc = (505-520)/(70/sqrt(49)) = -1.5

c. The decision rule is that if Z<-1.96 then we reject null and accept the claim

d. Since Z>Zc. We conclude that the claim of the insurance company about reducing the mean amount of claim is NOT right

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