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August 29, 2014

August 29, 2014

Posted by **Bettie** on Tuesday, April 16, 2013 at 6:05pm.

Approved Rejected Total

Joe 750 300 1,050

Bill 250 200 450

Total 1,000 500

Test at the 1% significance level if the approval or rejection of a loan application depends on which loan officer handles the application.

- Statistics -
**MathGuru**, Tuesday, April 16, 2013 at 9:10pmThis looks like a chi-square test.

To find expected values for each cell, here is a formula you can use:

E = (row total)(column total)/n

...where E is the expected cell count if the null hypothesis is true.

The null hypothesis states the variables are unrelated in the population. The alternate or alternative hypothesis states the variables are related in the population. The purpose of a chi-square test is to determine if two or more variables are independent of each other (the null hypothesis) or are dependent (the alternate or alternative hypothesis). If the null is rejected, you can conclude that the variables are related in some manner or connected in some way. If the null is not rejected, you cannot conclude that the variables are related.

To calculate the chi-square statistic (after you have your expected values), you can use a formula like the following:

Chi sq = the sum of [(O - E)^2/E]

...where ^2 means squared.

(Take each cell, subtract the expected value from the observed value, square it, then divide by the expected value. Do this for each cell. Then add all the values together for the chi-square statistic.)

Using a table for critical or cutoff values for the chi-square, find the critical value using .01 level with degrees of freedom. Degrees of freedom = (r - 1)(c - 1) ...where r = number of rows and c = number of columns. If your test statistic exceeds the critical value from the table, then the null is rejected. If your test statistic does not exceed the critical value from the table, then the null is not rejected.

I hope this will help get you started.

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