Question 8 (1 point) While attempting to measure its risk exposure for the upcom

Question

Question 8 (1 point)

While attempting to measure its risk exposure for the upcoming year, an insurance company notices a trend between the age of a customer and the number of claims per year. It appears that the number of claims keep going up as customers age. After performing a regression, they find that the relationship is (claims per year) = 0.275*(age) + 6.645. If a customer is 39.052 years old and they make an average of 8.515 claims per year, the residual is -8.869. Interpret this residual in terms of the problem.

Question 8 options:

1)

2)

3)

4)

5)

1)

The age is 8.869 years larger than than what we would expect.

2)

The number of claims per year is 8.869 claims less than than what we would expect.

3)

The number of claims per year is 8.515 claims less than than what we would expect.

4)

The age is 8.869 years less than than what we would expect.

5)

The number of claims per year is 8.869 claims greater than than what we would expect.

Explanation / Answer

Ans: 2) The number of claims per year is 8.869 claims less than than what we would expect.

Because If a customer is 39.052 years old then claims will be 0.275*39.052 + 6.645 = 17.38

Since the average claims is 8.515 then  8.869 claims less than than what we would expect.

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