Ophelia O'Brien, VP of Consumer Credit of American First Banks (AFB), monitors the default rate on personal loans at the AFB member banks.One of her standards is "no more than 5% of personal loans should be in default." On each Friday, the default rate is calculated for a sample of 500 personal loans.Last Friday's sample contained 38 defaulted loans.Using $\alpha$= 0.10, the appropriate decision is to _______.
A)reduce the sample size
B)increase the sample size
C)reject the null hypothesis
D)fail to reject the null hypothesis
E)do nothing

Question

Quizplus · Accepted Answer

The null hypothesis is that the default rate is 5% or less. With 38 defaults out of 500 loans, the sample default rate is 7.6%, which is higher than 5%. Using a significance level of 0.10, we reject the null hypothesis because the sample provides sufficient evidence that the default rate exceeds 5%.

Ophelia O'Brien, VP of Consumer Credit of American First Banks α\alphaα

Ophelia O'Brien, VP of Consumer Credit of American First Banks $\alpha$