Suppose that an insurance agent for 18th Century Insurance claims that the avera

Question

Suppose that an insurance agent for 18th Century Insurance claims that the average life insurance policy premium that he sells is $700 per year. A sample of 50 customers yields a mean of x=650 and a standard deviation of s=$150. You decide to test his claim at the =0.05 significance level.

If the hypotheses are

Ho= =700

H1= does not equal 700

With the critical values of + or - 1.96, compute the sample statistic then choose the appropriate conclusion from the following:

a) We cannot reject Ho, thus the average premium may be $700

b) We reject Ho, thus the premium is not $700.

Explanation / Answer

Since I see the +/- I assume you are doing a confidence interval: 700+/-1.96*150/sqrt(50) 700±41.5779 Does not include 650, so we reject the null. But that's wrong. The evidence suggests it, but statistics rarely says a definite.

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