1.
Information about mutual funds provided by Morningstar includes the type of mutual fund
(Domestic Equity, International Equity, or Fixed Income) and the Morningstar rating for the
fund. The rating is expressed from 1-star (lowest rating) to 5-star (highest rating).
Suppose a sample of 25 mutual funds provided the following counts:
• Sixteen mutual funds were Domestic Equity funds.
• Thirteen mutual funds were rated 3-star or less.
• Seven of the Domestic Equity funds were rated 4-star.
• Two of the Domestic Equity funds were rated 5-star.
Assume that one of these 25 mutual funds will be randomly selected in order to learn more
about the mutual fund and its investment strategy.
a. What is the probability of selecting a Domestic Equity fund?
b. What is the probability of selecting a fund with a 4-star or 5-star rating?
c. What is the probability of selecting a fund that is both a Domestic Equity fund and a
fund with a 4-star or 5-star rating?
d. What is the probability of selecting a fund that is a Domestic Equity fund or a fund
with a 4-star or 5-star rating?
2. Students taking the Graduate Management Admissions Test (GMAT) were asked about
their undergraduate major and intent to pursue their MBA as a full-time or part-time
student. A summary of their responses follows.
Undergraduate Major
Enrolment Status Business Engineering Other Totals
Full-Time 352 197 251 800
Part-Time 150 161 194 505
Totals 502 358 445 1305
a. Develop a joint probability table for these data.
b. Use the marginal probabilities of undergraduate major (business, engineering, or other)
to comment on which undergraduate major produces the most potential MBA students.
c. If a student intends to attend classes full-time in pursuit of an MBA degree, what is the
probability that the student was an undergraduate engineering major?
d. If a student was an undergraduate business major, what is the probability that the student
intends to attend classes full-time in pursuit of an MBA degree?
e. let A denote the event that the student intends to attend classes full-time in pursuit of an
MBA degree, and let B denote the event that the student was an undergraduate business
major. Are events A and B independent? Justify your answer.
3. The percentage of adult users of the Internet who use Facebook has increased over time.
Of adult Internet users age 18–49, 81% use Facebook. Of adult Internet users age 50 and
older, 54% use Facebook. Assume that 52% of adult Internet users are age 18–49.
a. What is the probability that a randomly selected adult user of the Internet is age 50
or older?
b. Given that an adult Internet user uses Facebook, what is the probability that he/she is
age 18–49?
4. The five most common words appearing in spam emails are shipping! today! here!
available, and fingertips!. Many spam filters separate spam from ham (email not considered
to be spam) through application of Bayes’ theorem. Suppose that for one email account, 1
in every 10 messages is spam and the proportions of spam messages and ham messages
that have the five most common words in email are given below.
Common Word Proportion of Spam messages Proportion of ham messages
shipping! .051 .0015
today! .045 .0022
here! .034 .0022
available .014 .0041
fingertips! .014 .0011
a. If a message includes the word shipping!, what is the probability the message is spam? If a
message includes the word shipping!, what is the probability the message is ham? Should
messages that include the word shipping! be flagged as spam?
b. If a message includes the word today!, what is the probability the message is spam? If a
message includes the word here!, what is the probability the message is spam? Which of
these two words is a stronger indicator that a message is spam? Why?
b. If a message includes the word available, what is the probability the message is spam? If a
message includes the word fingertips!, what is the probability the message is spam? Which
of these two words is a stronger indicator that a message is spam? Why?
c. What insights do the results of parts (b) and (c) yield about what enables a spam filter that
uses Bayes’ theorem to work effectively?
5. Two dice are rolled. Let X and Y be the observed numbers on first and second die,
respectively.
a. Find range of X, range of Y and the PMFs of X and Y.
b. Write down the joint PMF of (X,Y) and check for the independence of X and Y.
c. Find P(X=2, Y=6).
d. Find P(X>3|Y=2).
e. Let Z=X+Y. Find the range and PMF of Z.
f. Find P(X=4|Z=8).
6. You take an exam that contains 20 multiple-choice questions. Each question has 4 possible
options. You know the answer to 10 questions, but you have no idea about the
other 10 questions so you choose answers randomly. Your score X on the exam is the total
number of correct answers. Identify where X as a random variable is continuous or discrete
and hence write down the probability distribution of X. What is P(X>15)?]
7. A box contains two coins: a regular coin and a biased coin with P(H)=2/3. I choose a coin
at random and toss it once. I define the random variable X defined X=1 if the result of the
coin toss is heads and X=0 otherwise. Then I take the remaining coin in the box and toss it
once. I define the random variable Y will take value one if coin toss is head and Y=0
otherwise. Find the joint PMF of X and Y. Are X and Y independent?
8. Let X ∼ Poisson(α) and Y ~ Poisson(β) be two independent random variables. Define a
new random variable as Z=X+Y. Find the PMF of Z.
9. The number of emails that I get in a weekday (Monday through Friday) can be modeled
by a Poisson distribution with an average of 1/6 emails per minute. The number of emails
that I receive on weekends (Saturday and Sunday) can be modeled by a Poisson
distribution with an average of 1/30 emails per minute.
i. What is the probability that I get no emails in an interval of length 4 hours on a Sunday?
ii. A random day is chosen (all days of the week are equally likely to be selected), and a
random interval of length one hour is selected in the chosen day. It is observed that I did not
receive any emails in that interval. What is the probability that the chosen day is a weekday?
10. Choose a real number uniformly at random in the interval [2; 6] and call it X.
(a) Find the CDF of X, and Find E(X).