The bad debt ratio for a financial institution

Guadalupe Glass

Guadalupe Glass

Answered question

2022-03-31

The bad debt ratio for a financial institution is defined to be the dollar value of loans defaulted divided by the total dollar value of all loans made. A random sample of 6 Ontario banks is selected and that the bad debt ratios (in percentages) for these banks are:
7, 4, 6, 7, 5, 8
Compute and interpret a 95% confidence interval for the mean bad debt ratio. What needs to be true in order for this interval and interpretation to be valid?

Answer & Explanation

horieblersee275

horieblersee275

Beginner2022-04-01Added 17 answers

Step 1
The variance has presumably been calculated as
(7376)2+(4376)2+(6376)2+(7376)2+(5376)2+(8376)261
with division by 61 rather than 6 to give an unbiased estimate of the population estimate.
With such as small sample, even if you assume a normal distribution for the population, you should probably be using a Student's t-distribution for the confidence interval.

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