While attempting to measure its risk exposure for the upcoming year, an insuranc

Question

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) = 0.212*(age) + 3.754. If a customer is 43.716 years old and they make an average of 14.465 claims per year, what is the residual?

Question 22 options:

1)

2)

3)

4)

5)

1)

-29.251

2)

29.251

3)

-1.443

4)

1.443

5)

30.694

Explanation / Answer

(claims per year) = 0.212*(age) + 3.754

putting the value of age as 43.716 in the equation we get (claims per year) as  0.212*43.716 + 3.754=13.0218

thus residual is 13.0218-14.465=-1.443 or option 3

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