When an insurance company is going to write a new home owner policy, - 6648

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When an insurance company is going to write a new home owner policy, one concern is the distance between the house and the nearest fire department station. This is one factor that goes in to determining the cost of the insurance for the home owner. ETB Insurance Company wants to determine if there is a relationship between the distance to a fire station and the amount of fire damage to a house. A random sample of 50 claims was selected for analysis. The correlation coefficient was 0.78. Which is the correct interpretation and recommendation?

 

A.   The strong relationship indicates that distance to a fire station is a reasonable factor to be considered when determining insurance rates.

B.   The strong inverse relationship indicates that distance to a fire station is a reliable variable to consider as a factor in determining insurance rates.

C.   There is not a strong enough relationship so as to be able to use distance to a firehouse as a factor in determining insurance rates.

D.   The variable, distance to a fire station, is able to explain 78% of the variation in the problem and so it is a reasonable factor to use in determining insurance rates.

 

 
Solution Description

When an insurance company is going to write a new home owner policy, one concern is the distance between the house and the nearest fire department station. This is one factor that goes in to determining the cost of the insurance for the home owner. ETB Insurance Company wants to determine if there is a relationship between the distance to a fire station and the amount of fire damage to a house. A random sample of 50 claims was selected for analysis. The corre