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) = 0.47*(age) + 5.67. If a customer is 31 years old and they make an average of 12.02 claims per year, what is the residual?

Question 9 options:

	1) 18.98
	2) 10.76
	3) 8.22
	4) -8.22
	5) -18.98

Answer 1

Solution :

Given that,

(claims per year) = 0.47*(age) + 5.67

we plug x = 31 we get,

(claims per year) = 0.47 * 31 + 5.67 = 20.24

residual = 12.02 - 20.24 = -8.22

Option 4)