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 February 7th, 2017, 11:28 AM #1 Newbie   Joined: Feb 2017 From: Macedonia, Struga Posts: 3 Thanks: 0 Probability problem with Insurance company Help An insurance company is reviewing its current policy rates. When originally setting the rates they believed that the average clam amount was $1500. They are concerned that the true mean is actually higher than this, because they could potentially lose a lot of money. They randomly select 40 claims, and calculate a sample mean of$1650. Assuming that the standard deviation of claims is $350, test to see if the insurance company should be concerned. a) Does the test confirms the concern of the insurance company that the true mean is actually higher than$1500, with acceptable risk of 1$? b) Calculate the total error if the probability that the average claim amount is higher than$1500 is 5$, and the power of the test is 95$. Last edited by zupanii; February 7th, 2017 at 11:38 AM.
February 7th, 2017, 11:33 AM   #2
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 Originally Posted by zupanii An insurance company is reviewing its current policy rates. When originally setting the rates they believed that the average clam amount was \$1500. They are concerned that the true mean is actually higher than this, because they could potentially lose a lot of money. They randomly select 40 claims, and calculate a sample mean of \$1650. Assuming that the standard deviation of claims is \$350, test to see if the insurance company should be concerned. a) Does the test confirms the concern of the insurance company that the true mean is actually higher than \$1500, with acceptable risk of 1\$? b) Calculate the total error if the probability that the average claim amount is higher than \$1500 is 5\$, and the power of the test is 95$.

 February 7th, 2017, 11:40 AM #3 Newbie   Joined: Feb 2017 From: Macedonia, Struga Posts: 3 Thanks: 0 An insurance company is reviewing its current policy rates. When originally setting the rates they believed that the average clam amount was $1500. They are concerned that the true mean is actually higher than this, because they could potentially lose a lot of money. They randomly select 40 claims, and calculate a sample mean of$1650. Assuming that the standard deviation of claims is $350, test to see if the insurance company should be concerned. a) Does the test confirms the concern of the insurance company that the true mean is actually higher than$1500, with acceptable risk of 1$? b) Calculate the total error if the probability that the average claim amount is higher than$1500 is 5$, and the power of the test is 95$.
 February 7th, 2017, 12:13 PM #4 Senior Member   Joined: Dec 2012 From: Hong Kong Posts: 853 Thanks: 311 Math Focus: Stochastic processes, statistical inference, data mining, computational linguistics Can you show us you understand the question first? -What are the null and alternative hypotheses? -Which test should you use? (Hint: the population SD is given)
 February 8th, 2017, 07:16 AM #5 Newbie   Joined: Feb 2017 From: Macedonia, Struga Posts: 3 Thanks: 0 a) n=40 x=1650 alpha= 0,05 beta= 350 z=(1650-1500)/(350/ root of 40)= 2,71 b) idk how to solve this one

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