Lenders tighten or loosen their standards for issuing credit as economic conditions change. One of the criteria lenders use to evaluate the creditworthiness of a potential borrower is her credit risk score, usually a FICO score. FICO scores range from 300 to 850. A consumer with a high FICO score is perceived to be a low credit risk to the lender and is more likely to be extended credit than a consumer with a low score. A credit card represents a line of credit, because the credit card holder obtains a loan whenever the card is used to pay for a purchase. A study of credit card accounts opened in 2002 found a mean FICO score for the credit card holder (at the time the card was issued) of 731 and a standard deviation of 76. [Source: Sumit Agarwal, John C. Driscoll, Xavier Gabaix, and David Laibson, "Learning in the Credit Card Market," Working Paper 13822, National Bureau of Economic Research (NBER), February 2008.] You conduct a hypothesis test to determine whether banks have tightened their standards for issuing credit cards since 2002. You collect a random sample of 100 credit cards issued during the past 6 months. The sample mean FICO score of the credit card holders (at the time their cards were issued) is X = 747. Assume that the standard deviation of the population of FICO scores for credit cards issued during the past 6 months is known to be o = 76, the standard deviation from the NBER study.
Lenders tighten or loosen their standards for issuing credit as economic conditions change. One of the criteria lenders use to evaluate the creditworthiness of a potential borrower is her credit risk score, usually a FICO score. FICO scores range from 300 to 850. A consumer with a high FICO score is perceived to be a low credit risk to the lender and is more likely to be extended credit than a consumer with a low score. A credit card represents a line of credit, because the credit card holder obtains a loan whenever the card is used to pay for a purchase. A study of credit card accounts opened in 2002 found a mean FICO score for the credit card holder (at the time the card was issued) of 731 and a standard deviation of 76. [Source: Sumit Agarwal, John C. Driscoll, Xavier Gabaix, and David Laibson, "Learning in the Credit Card Market," Working Paper 13822, National Bureau of Economic Research (NBER), February 2008.] You conduct a hypothesis test to determine whether banks have tightened their standards for issuing credit cards since 2002. You collect a random sample of 100 credit cards issued during the past 6 months. The sample mean FICO score of the credit card holders (at the time their cards were issued) is X = 747. Assume that the standard deviation of the population of FICO scores for credit cards issued during the past 6 months is known to be o = 76, the standard deviation from the NBER study.
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![Lenders tighten or loosen their standards for issuing credit as economic conditions change. One of the criteria lenders use to evaluate the
creditworthiness of a potential borrower is her credit risk score, usually a FICO score. FICO scores range from 300 to 850. A consumer with a high
FICO score is perceived to be a low credit risk to the lender and is more likely to be extended credit than a consumer with a low score.
A credit card represents a line of credit, because the credit card holder obtains a loan whenever the card is used to pay for a purchase. A study of
credit card accounts opened in 2002 found a mean FICO score for the credit card holder (at the time the card was issued) of 731 and a standard
deviation of 76. [Source: Sumit Agarwal, John C. Driscoll, Xavier Gabaix, and David Laibson, "Learning in the Credit Card Market," Working Paper
13822, National Bureau of Economic Research (NBER), February 2008.]
You conduct a hypothesis test to determine whether banks have tightened their standards for issuing credit cards since 2002. You collect a random
sample of 100 credit cards issued during the past 6 months. The sample mean FICO score of the credit card holders (at the time their cards were
issued) is X = 747. Assume that the standard deviation of the population of FICO scores for credit cards issued during the past 6 months is known to
be o = 76, the standard deviation from the NBER study.
Let u equal the true population mean FICO score for consumers issued credit cards in the past 6 months. You should formulate the null and alternative
hypotheses as:
O Ho: µ > 731, Hạ: µ < 731
O Ho: X< 731, Ha: X > 731
O Ho: µ 2 731, Ha: µ < 731
Ho: µ s 731, Ha: µ > 731
If the null hypothesis is true as an equality, the sampling distribution of x is approximated by
distribution with
and a standard deviation of
The value of the standardized test statistic is](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe5322f76-08be-4cea-9041-3fbbc034811a%2Fc6e6dfd1-d24d-4438-98d5-74f634fa49fd%2F7vlqrpi_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Lenders tighten or loosen their standards for issuing credit as economic conditions change. One of the criteria lenders use to evaluate the
creditworthiness of a potential borrower is her credit risk score, usually a FICO score. FICO scores range from 300 to 850. A consumer with a high
FICO score is perceived to be a low credit risk to the lender and is more likely to be extended credit than a consumer with a low score.
A credit card represents a line of credit, because the credit card holder obtains a loan whenever the card is used to pay for a purchase. A study of
credit card accounts opened in 2002 found a mean FICO score for the credit card holder (at the time the card was issued) of 731 and a standard
deviation of 76. [Source: Sumit Agarwal, John C. Driscoll, Xavier Gabaix, and David Laibson, "Learning in the Credit Card Market," Working Paper
13822, National Bureau of Economic Research (NBER), February 2008.]
You conduct a hypothesis test to determine whether banks have tightened their standards for issuing credit cards since 2002. You collect a random
sample of 100 credit cards issued during the past 6 months. The sample mean FICO score of the credit card holders (at the time their cards were
issued) is X = 747. Assume that the standard deviation of the population of FICO scores for credit cards issued during the past 6 months is known to
be o = 76, the standard deviation from the NBER study.
Let u equal the true population mean FICO score for consumers issued credit cards in the past 6 months. You should formulate the null and alternative
hypotheses as:
O Ho: µ > 731, Hạ: µ < 731
O Ho: X< 731, Ha: X > 731
O Ho: µ 2 731, Ha: µ < 731
Ho: µ s 731, Ha: µ > 731
If the null hypothesis is true as an equality, the sampling distribution of x is approximated by
distribution with
and a standard deviation of
The value of the standardized test statistic is
Transcribed Image Text:Mean = 730
Standard Deviation = 8.5
710
720
730
740
75(8
1
2
You conduct the hypothesis test using a significance level of a = 0.05. Use the tool to develop the rejection region for your test. According to the
critical value approach, when do you reject the null hypothesis?
O Reject Ha if z 2 1.645
O Reject Ho if z s -1.96 or z > 1.96
O Reject Ho if z 2 1.645
O Reject Ho if z < 2.11
The p-value is
Using the critical value approach, the null hypothesis is
, because
. Using the p-value approach, the null
hypothesis is
, because
Therefore, you
conclude that banks have tightened their standards for
issuing credit cards since 2002.
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