question archive Question 9 (1 point) While attempting to measure its risk exposure for the upcoming year, an insurance company notices a trend between the age of a customer and the number of claims per year
Question 9 (1 point) While attempting to measure its risk exposure for the upcoming year, an insurance company notices a trend between the age of a customer and the number of claims per year
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Question 9 (1 point) While attempting to measure its risk exposure for the upcoming year, an insurance company notices a trend between the age of a customer and the number of claims per year. It appears that the number of claims keep going up as customers age. After performing a regression, they find that the relationship is (claims per year) = 0.45*(age) + 6.25. If a customer is 44 years old and they make an average of 10.05 claims per year, what is the residual? ( 1) 33.95 ( 2) - 16 ( 3) -33.95 ( 4) 17.95 ( 5) 16
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First, calculate what is expected by the regression equation, by plugging in 44 for age.
claims per year = 0.45 x 44 + 6.25
claims per year = 19.8 + 6.25 = 26.05
However, this person only makes 10.05 claims.
The residual is calculated by:
residual = observed value - expected value
Plug in the calculated expected value and the observed value of 10.05.
residual = 10.05 - 26.05 = -16
