Question

Suppose ARB Bank is reviewing its service charges and interest payment policies on current accounts. Suppose further that ARB has found that the average daily balance on personal current accounts is GH¢350.00, with a standard deviation of GH¢160.00. In addition, the average daily balances have been found to follow a normal distribution;
What percentage of customers carries a balance of GH¢100 or lower?
What percentage of customers carries a balance of GH¢500 or lower?
What percentage of current account customers carries average daily balances exactly equal to GH¢500?
What percentage of customers maintains account balance between GH¢100 and GH¢500?

Answer 1

Answer:

5.94% of customers carries a balance of GH¢100 or lower.

82.64% of customers carries a balance of GH¢500 or lower.

0% of current account customers carries average daily balances exactly equal to GH¢500.

76.7% of customers maintains account balance between GH¢100 and GH¢500

Step-by-step explanation:

When the distribution is normal, we use the z-score formula.

In a set with mean $\mu$ and standard deviation $\sigma$, the zscore of a measure X is given by:

$Z = \frac{X - \mu}{\sigma}$

The Z-score measures how many standard deviations the measure is from the mean. After finding the Z-score, we look at the z-score table and find the p-value associated with this z-score. This p-value is the probability that the value of the measure is smaller than X, that is, the percentile of X. Subtracting 1 by the pvalue, we get the probability that the value of the measure is greater than X.

In this question, we have that:

$\mu = 350, \sigma = 160$

What percentage of customers carries a balance of GH¢100 or lower?

This is the pvalue of Z when X = 100. So

$Z = \frac{X - \mu}{\sigma}$

$Z = \frac{100 - 350}{160}$

$Z = -1.56$

$Z = -1.56$ has a pvalue of 0.0594

5.94% of customers carries a balance of GH¢100 or lower.

What percentage of customers carries a balance of GH¢500 or lower?

This is the pvalue of Z when X = 500.

$Z = \frac{X - \mu}{\sigma}$

$Z = \frac{500 - 350}{160}$

$Z = 0.94$

$Z = 0.94$ has a pvalue of 0.8264

82.64% of customers carries a balance of GH¢500 or lower.

What percentage of current account customers carries average daily balances exactly equal to GH¢500?

In the normal distribution, the probability of finding a value exactly equal to X is 0. So

0% of current account customers carries average daily balances exactly equal to GH¢500.

What percentage of customers maintains account balance between GH¢100 and GH¢500?

This is the pvalue of Z when X = 500 subtracted by the pvalue of Z when X = 100.

From b), when X = 500, Z = 0.94 has a pvalue of 0.8264

From a), when X = 100, Z = -1.56 has a pvalue of 0.0594

0.8264 - 0.0594 = 0.767

76.7% of customers maintains account balance between GH¢100 and GH¢500