Question

The distribution of income tax refunds follow an approximate normal distribution with a mean of $7010 and a standard deviation of $43. All of the income tax returns claiming the largest 0.15 % of refunds will be audited. Use the Empirical Rule to determine approximately above what dollar value must a refund be before it is audited.

Answer 1

A refund must be above $7,139 before it is audited.

Explanation:

The Empirical Rule states that, for a normally distributed random variable:

Approximately 68% of the measures are within 1 standard deviation of the mean.

Approximately 95% of the measures are within 2 standard deviations of the mean.

Approximately 99.7% of the measures are within 3 standard deviations of the mean.

In this problem, we have that:

Mean = 7010, standard deviation = 43.

Approximately 99.7% of the measures are within 3 standard deviations of the mean.

The empirical rule is symmetric, which means that the lowest (100-99.7)/2 = 0.15% is at least 3 standard deviations below the mean, and the upper 0.15% is at least 3 standard deviations above the mean.

Use the Empirical Rule to determine approximately above what dollar value must a refund be before it is audited.

3 standard deviations above the mean, so:

7010 + 3*43 = 7139.

A refund must be above $7,139 before it is audited.