2. (3 points) Suppose that 2% of all loans that a bank holds involve fraud. An a

Question

2. (3 points) Suppose that 2% of all loans that a bank holds involve fraud. An auditor randomly selects 600 of the bank's loans for careful examination and calculates the proportion of loans involving fraud in the sample a. Find the mean of the proportion of loans in the sample that involve fraud. b Find the standard error of the proportion of loans in the sample that involve fraud c. The sampling distribution of the sample proportion is (Circle one) exactly normal approximately normal /not even approximately normal.

Explanation / Answer

p = 0.02

n = 600

a) Mean = n * p = 0.02 * 600 = 12

b) SEp = sqrt [ p(1 - p) / n ]

SEp = sqrt [ 0.02 * (0.98) / 600 ]

SE = 0.00572

c) approx normal as n * p > 5

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