Normal Distribution Problems
Problem-1.
Given that z is a standard normal random variable, compute the following probabilities.
a) P(0<=Z<=0.83)
b) P(-1.57<=Z<=0)
c) P(Z>0.44)
d) P(Z>=0-.23)
e) P(Z<1.20)
f) P(Z<=0.71)
Ans:
a. P(0 ≤ z ≤ .83) = .7967 - .5000 = .2967
b. P(-1.57 ≤ z ≤ 0) = .5000 - .0582 = .4418
c. P(z > .44) = 1 - .6700 = .3300
d. P(z ≥ -.23) = 1 - .4090 = .5910
e. P(z < 1.20) = .8849
f. P(z ≤ -.71) = .2389
Problem-2.
Given that Z is a standard normal random variable, find Z for each situation.
a) The area to the left of Z is 0.2119
b) The area between –z to z is 0.9030
c) The area between –z to z is 0.2052
d) The area to the left of Z is 0.9948
e) The area to the right of Z is 0.6915
Ans:
a. The z value corresponding to a cumulative probability of .2119 is z = -.80.
b. Compute .9030/2 = .4515; z corresponds to a cumulative probability of .5000 + .4515 = .9515.
So z = 1.66.
c. Compute .2052/2 = .1026; z corresponds to a cumulative probability of .5000 + .1026 = .6026.
So z = .26.
d. The z value corresponding to a cumulative probability of .9948 is z = 2.56.
e. The area to the left of z is 1 - .6915 = .3085. So z = -.50.
Problem 3
The average stock price for companies making up the S&P 500 is $30, and the standard
deviation is $8.20. Assume that the stock prices are normally distributed.
a) What is the probability a company will have a stock price of at least $40?
b) What is the probability that a company will have a stock price no higher than $20?
c) How high does a stock price have to be to put a company in the top 10%?
Ans:
= 30 and = 8.2
40 30
a. At x = 40, z 1.22
8.2
P(z 1.22) = .8888
P(x 40) = 1 - .8888 = .1112
20 30
b. At x = 20, z 1.22
8.2
P(z ≤ -1.22) = .1112
So, P(x 20) = .1112
c. A z-value of 1.28 cuts off an area of approximately 10% in the upper tail.
x = 30 + 8.2(1.28) = 40.50
A stock price of $40.50 or higher will put a company in the top 10%
Problem 4:
The mean hourly pay rate for financial managers in the East North Central Region is $32.62
and the standard deviation is $2.32. Assume that the pay rates are normally distributed.
a) What is the probability that a financial manager earns between $30 to $35 per hour?
b) How high must the hourly rate be to put a financial manager in the top 10% with
respect to pay?
c) For a randomly selected financial manager, what is the probability that the manager
earned less than $28 per hour?
Ans:
Use = 32.62 and = 2.32
a. We want to find P(30 ≤ x ≤ 35)
At x = 35,
35 32.62
z 1.03
2.32
At x = 30
30 32.62
z 1.13
2.32
P(30 ≤ x ≤ 35) = P(-1.13 ≤ z ≤ 1.03) = P(z ≤ 1.03) - P(z ≤ -1.13)
= .8485 - .1292
= .7193
The probability a financial manager earns between $30 and $35 per hour is .7193.
Must find the z-value that cuts off an area of .10 in the upper tail. Using the normal tables, we find z =
1.28 cuts off approximately .10 in the upper tail.
So, x = + z = 32.62 + 1.28(2.32) = 35.59
An hourly pay rate $35.59 or above will put a financial manager in the top 10%.
28 32.62
c. At x = 28, z 1.99
2.32
P(x < 28) = P(z < -1.99) = .0233
The probability a randomly selected financial manager earns less than $28 per hour is .0233.
Problem 5:
Weekly rates of return (on an annualized basis) for certain securities over a given period are
believed to be normally distributed with mean 8% and variance 0.25. Give two values x 1 and
x2 such that you are 95% sure that annualized weekly returns will be between two values.
Ans:
X ~ N(8, 0.25)
such that P(
x1 < X < x2 )
find = 0.95
= ± 1.96
=8 1.96(.5) = [7.02, 8.98] percent.
Problem 6:
The number of newspapers demanded daily in a large metropolitan area is believed to
be an approximately normally distributed random variable. If more newspapers are
demanded than are printed, the paper suffers an opportunity loss, in that it could have
sold more papers, and a loss of public goodwill. On the other hand, if more papers are
printed than will be demanded, the unsold papers are returned to the newspaper office
at a loss. Suppose that the management believes that guarding against the first type of
error, unmet demand, is most important and would like to set the number of papers at
level such that 75% of the time, the demand for newspapers will be lower than that
point. How many papers should be printed daily if average demand is 34,750 papers
and the standard deviation of demand is 3,560?
Ans:
X ~ N(34,750, 3,5602)
P(X < x) = 0.75 z = 0.675
X = 34,750 + (.675)3,560 = 37,153 papers.
Problem 7:
A customer who has ordered 1-inch diameter pins in bulk will buy only those pins with
diameters in the interval 1+/-0.003 inches. An automatic machine produces pins whose
diameters are normally distributed with mean 1.002 inches and standard deviation 0.0011
inch.
a) What percentage of the pins made by the machine will be acceptable to the customer?
b) If the machine is adjusted so that the mean of the pins made by the machine is reset to
1.00 inch, what percentage of the pins will be acceptable to the customer?
Ans:
a) P(0.997<X<1.003) = 0.8183, 81.83% of the pins will be acceptable to the customers.
b) Mean is now 1 inch, so P(0.997<X<1.003) = 0.9936, 99. 36% of the pins will be
acceptable to the customers.