Question

Anystate Auto Insurance Company took a random sample of 364 insurance claims paid out during a 1-year period. The average claim paid was $1525. Assume σ = $258.

Find a 0.90 confidence interval for the mean claim payment. (Round your answers to two decimal places.)

lower limit	$
upper limit	$

Find a 0.99 confidence interval for the mean claim payment. (Round your answers to two decimal places.)

lower limit	$
upper limit	$

Answer 1

Solution:

Given:

Sample Size = n = 364

Sample Mean =

Population Standard Deviation =

Part a) Find a 0.90 confidence interval for the mean claim payment

where

Z_c is z critical value for c = 90% confidence level.

Find Area = ( 1 + c ) / 2 = ( 1 + 0.90) / 2 = 1.90 / 2 = 0.9500

Look in z table for Area = 0.9500 or its closest area and find corresponding z value.

Area 0.9500 is in between 0.9495 and 0.9505 and both the area are at same distance from 0.9500

Thus we look for both area and find both z values

Thus Area 0.9495 corresponds to 1.64 and 0.9505 corresponds to 1.65

Thus average of both z values is : ( 1.64+1.65) / 2 = 1.645

Thus Z_c = 1.645

Thus

Thus

Thus

Lower limit = $ 1502.75

Upper limit = $ 1547.25

Part b) Find a 0.99 confidence interval for the mean claim payment.

where

Z_c is z critical value for c = 0.99 confidence level.

Find Area = ( 1+c)/2 = ( 1 + 0.99 ) / 2 = 1.99 /2 = 0.9950

Thus look in z table for Area = 0.9950 or its closest area and find corresponding z critical value.

From above table we can see area 0.9950 is in between 0.9949 and 0.9951 and both are at same distance from 0.9950, Hence corresponding z values are 2.57 and 2.58

Thus average of both z values is 2.575

Thus Z_c = 2.575

Thus

Thus

Thus

Lower limit = $ 1490.18

Upper limit = $ 1559.82