The Actuarial Department of an insurance company was assigned the task - 11587

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mareya

mareya

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The Actuarial Department of an insurance company was assigned the task of determining the relationship between the distance to a fire station and the amount of damage to a house. This is one factor that is utilized in determining the cost of insurance for a home owner. A sample of 35 claims was selected from last year. When the analysis was completed the following regression equation was the result. 

(X is the distance to a fire station and Y' is the amount of damage in thousands of dollars)

Y' = 11.65 + 5.12X 

If a house was 10 miles from the fire station, what would be the best estimate of the cost of damages to the house?

A.   For every mile that the house is from the fire station, the damages to the house will increase by the factor 5.12.

B.   There is a direct relationship but it is weak.

C.   The damages to a house that is 10 miles from a fire station would be about $53,000.

D.   For every mile that the house is from the fire station, there is an 11.65 increase in cost.

 
Solution Description

The Actuarial Department of an insurance company was assigned the task of determining the relationship between the distance to a fire station and the amount of damage to a house. This is one factor that is utilized in determining the cost of insurance