The policy of a particular bank branch is that the ATM must be stocked with enough cash to satisfy customers making withdrawals over an entire weekend. At this branch, the average amount of money withdrawn from the ATM machines per customer transaction over the weekend is R250 with the standard deviation of R50. Suppose that a random sample of 49 customer transactions was examined and it is observed that the sample mean withdrawal is R250. Suppose we test at the 5% level of significance whether there is reason to believe that the true mean withdrawal is greater than R240. State the value of alpha.

1 answer

In hypothesis testing, the level of significance, denoted as \( \alpha \), represents the probability of rejecting the null hypothesis when it is true. In this case, since you are testing at the 5% level of significance, the value of \( \alpha \) is:

\[ \alpha = 0.05 \]

This means that there is a 5% risk of concluding that the true mean withdrawal is greater than R240 when, in fact, it is not.