Question

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 30 defaulted loans. The critical value for z for a one-tailed test with the tail in the left end is -1.645 and the obtained value is -1.24. The appropriate decision is ________.

		reduce the sample size
		increase the sample size
		reject the null hypothesis
		fail to reject the null hypothesis
		do nothing

Answer 1

For the given data,

The test statistic z = -1.24 and

The critical value of z at 0.05 signifance level for left tailed test is z = -1.645.

Since calculated |z| is less than the critical |z|.

That is 1.24 < 1.645. (or) -1.24 > -1.645.

The appropriate decision is

Fail to reject the null hypothesis.