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    Question

    An insurance company wants to estimate the average

    claim amount for motor insurance policies. They take multiple random samples of 50 claims each from a large population. They notice that the distribution of sample means forms a bell-shaped curve , even though the population distribution is right-skewed .   Which statistical concept explains this phenomenon?  
    A Law of Large Numbers Correct Answer Incorrect Answer
    B Central Limit Theorem Correct Answer Incorrect Answer
    C Sampling Bias Correct Answer Incorrect Answer
    D Heteroscedasticity Correct Answer Incorrect Answer
    E Non-Parametric Estimation Correct Answer Incorrect Answer

    Solution

    Explanation: The Central Limit Theorem (CLT) states that, regardless of the shape of the population distribution , the distribution of sample means will tend to be normal (bell-shaped) if the sample size is sufficiently large (typically n ≥ 30 ). Here, despite the right-skewed nature of the claim amounts , the repeated sampling process ensures that the sample means approximate a normal distribution , allowing for reliable statistical inferences.

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