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Detecting FraudThe Brooklyn District Attorney鈥檚 office analyzed the leading (leftmost) digits of check amounts in order to identify fraud. The leading digit of 1 is expected to occur 30.1% of the time, according to 鈥淏enford鈥檚 law,鈥 which applies in this case. Among 784 checks issued by a suspect company, there were none with amounts that had a leading digit of 1.

a. If there is a 30.1% chance that the leading digit of the check amount is 1, what is the expected number of checks among 784 that should have a leading digit of 1?

b. Assume that groups of 784 checks are randomly selected. Find the mean and standard deviation for the numbers of checks with amounts having a leading digit of 1.

c. Use the results from part (b) and the range rule of thumb to identify the values that are significantly low.

d. Given that the 784 actual check amounts had no leading digits of 1, is there very strong evidence that the suspect checks are very different from the expected results? Why or why not?

Short Answer

Expert verified

a.The expected number of checks among the 784 that should have a leading digit of 1 is 236.0.

b. The mean number of checks is 236, and the standard deviation is 12.8 checks.

c.The significant low values are the values less than 210.4 checks.

d. Yes, there is strong evidence that the suspect checks are very different from the expected results.

Step by step solution

01

Given information

The number of checks issued by a suspect company isn=784.

The probability of a check having a lead digit of 鈥1鈥檌s p=0.301.

02

Compute the expected value

a.

The expectednumber of checks among the 784 that should have a leading digit of 1 is computed as follows.

=np=7840.301=235.984236.0

Therefore, theexpectednumber of checks among the 784 that should have a leading digit of 1 is236.0.

03

Calculate the mean and the standard deviation

b.

The mean number of checks among the 784 that should have a leading digit of 1 is computed as follows.

=np=7840.301=235.984236

Thus, the mean is 236 checks.

The standard deviation of thenumber of checks among the 784 that should have a leading digit of 1 is computed as follows.

=np1-p=7840.3011-0.301=12.8412.8

.

Therefore, the standard deviation of the number of checks among the 784 that should have a leading digit of 1 is 12.8 checks.

04

Identify the significant low values

c.

Using the range rule of thumb, we get that the significant low values are the values less than -2.

The calculation is as follows.

-2=236.0-212.8=210.4

Therefore, the significant low values are the values that are less than 210.4 checks.

05

Conclusion

d.

It can be observed that 0 is less than or equal to 210.4.

Therefore, there isstrong evidence that the suspect checks are very different from the expected results.

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