Question

The Fair Isaac Corporation credit score is used by banks and other lenders to determine whether someone is a good credit risk. Scores range from 300 to 850, with a score of 720 or more indicating that a person is a very good credit risk. An economist wants to determine whether the average FICO score for American adults is lower than the cutoff of 720. She selects 35 American adults and finds a mean FICO score of 690 and a standard deviation of 96. Is there evidence that the mean FICO score for American adults is less than 720? Perform a test at .05 level of significance.

Answer 1

Ans:

As,n>=30,we can use normal distribution.

Test statistic:

z=(690-720)/(96/sqrt(35))

z=-1.85

p-value=P(z<-1.85)=0.0322

As,p-value is less than 0.05,we reject the null hypothesis.

There is sufficient evidence to conclude that the mean FICO score for American adults is less than 720