Independent solution

How to solve this Normal Distribution question

Setup

Setup

The mean of 25 independent normal claims is normal with mean 19,400 and standard deviation 5,000 divided by 5, or 1,000.

XˉN(19400,5000225)\bar X\sim N\left(19400,\frac{5000^2}{25}\right)

Model

Model

Standardize the threshold 20,000 using the sample-mean standard deviation, not the individual-claim standard deviation.

z=20000194005000/25=0.6z=\frac{20000-19400}{5000/\sqrt{25}}=0.6

Compute

Compute

The standardized threshold is 0.6, so the required upper tail is one minus the standard normal cumulative probability at 0.6, equal to 0.274253.

P(Xˉ>20000)=1Φ(0.6)=0.274253P(\bar X>20000)=1-\Phi(0.6)=0.274253

Answer

Answer

The probability rounds to 0.27, corresponding to choice C.

0.27(C)\boxed{0.27\quad\text{(C)}}