A car insurance company’s repair claims have an unknown mean but a standard deviation of $370....
A car insurance company’s repair claims have an unknown mean but
a standard deviation of
$370. Suppose that the next 16 claims can be regarded as a simple
random sample from all their claims. They compute a sample mean
based on these 16 claims to estimate the mean of all their claims.
They are concerned that the standard deviation of this sample mean
is too large. They would like to ensure that their estimate is
close to the true mean claim.
How large should their simple random sample be to reduce the
standard deviation of the sample mean by half?
-
A. 8
-
B. 32
-
C. 48
-
D. 64
-
E. 128
Homework Answers
Standard deviation is inversely proportional to the square root of sample size.so to reduce the standard deviation in half, the sample size should be 4 times the original one. Hence,
Required sample size = 16*4 = 64
Optiom D is correct.
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