Suppose that yearly health care expenses for a family of four are normally distr

Question

Suppose that yearly health care expenses for a family of four are normally distributed with a mear expense equal to $3,000 and a standard deviation of $500. An insurance company has decided to offer a health insurance premium reduction if a policyholder's health care expenses do not exceed a specified dollar amount. What dollar amount should be established if the insurance company wants families having the lowest 33 percent of yearly health care expenses to be eligible for the premium reduction? 6.34

Explanation / Answer

z score corresponding to 33% area to its left = -0.44

Hence,

Dollar amount that company should specify = 3000 - 0.44*500 = $ 2780

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