Question

Based on past experience, a bank believes that 8.9 % of the people who receive loans will not make payments on time. The bank has recently approved 220 loans. What must be true to be able to approximate the sampling distribution with a normal model

Answer 1

Answer:

To be able to approximate the sampling distribution with a normal model, it is needed that $np \geq 10$ and $n(1-p) \geq 10$, and both conditions are satisfied in this problem.

Step-by-step explanation:

For each person, there are only two possible outcomes. Either they will make payments on time, or they won't. The probability of a person making the payment on time is independent of any other person, which means that the binomial probability distribution is used to solve this question.

Binomial probability distribution

Probability of exactly x successes on n repeated trials, with p probability.

The sampling distribution can be approximated to a normal model if:

$np \geq 10$ and $n(1-p) \geq 10$

Based on past experience, a bank believes that 8.9 % of the people who receive loans will not make payments on time.

This means that $p = 0.089$

The bank has recently approved 220 loans.

This means that $n = 220$

What must be true to be able to approximate the sampling distribution with a normal model?

$np = 220*0.089 = 19.58 \geq 10$

$n(1-p) = 220*0.911 = 200.42 \geq 10$

To be able to approximate the sampling distribution with a normal model, it is needed that $np \geq 10$ and $n(1-p) \geq 10$, and both conditions are satisfied in this problem.