Q1

In a recent survey concerning the age (to the nearest year) and weight (to the
probability distribution was obtained:

Weight
Age
100 110 120 130 140
19 0.02 0.09 0.09 0.01 0.02
20 0.06 0.15 α 0.05 0.03
21 0.02 0.06 0.11 0.04 0.05
Total

a) Find the value of α

--> Total probability = 1
--> α = 1 – 0.02 - 0.09 - 0.09 - 0.01 - 0.02 - 0.06 - 0.15 - 0.05 - 0.03 - 0.02 -

Weight
Age
100 110 120 130 140
19 0.02 0.09 0.09 0.01 0.02
20 0.06 0.15 0.2 0.05 0.03
21 0.02 0.06 0.11 0.04 0.05
Total 0.1 0.3 0.4 0.1 0.1

b) Construct the probability distribution of the weights of these students.

Probability distribution of weight

Weight 100 110 120 130 140
Probability 0.1 0.3 0.4 0.1 0.1
=0.02+0.06 =0.09+0.15+ =0.09+0.2 =0.01+0.05+ =0.02+0.03
+0.02 0.06 +0.11 0.04 +0.05

c) A student is selected at random. What do you expect his/her weight to be?

= expected value (M
 E(X) = 100 x 0.1 + 110 x 0.3 + 120 x 0.4 + 130 x 0.1 + 140 x 0.1
= 118 lb

d) What is the standard deviation of the distribution in (b)?

---> Square root of variance
-->

σ=

= 10.77lb

e) Are “age” and “weight” independent? Why or why not?

--> Two events are independent if and only if
P(A|B) = P(A) or P(B|A) = P(B)
--> P(A|B)=P(A&B)/P(B)

--> If P (A and B) = P(A)*P(B) ==> A & B are independent

Take Age (A)= 21 and Weight (B)= 110 lb as example,
P (Age=21 and Weight = 110) =0.06
P (Age=21) = 0.02+0.06+0.11+0.04+0.05 = 0.28
P (Weight=110) = 0.3
P (Weight=110) x P (Age=21) = 0.3 x 0.28
= 0.084 ≠ 0.06
==> X independent
nd weight (to the nearest 10 lb) of first-year university students, the following

Total

05 - 0.03 - 0.02 - 0.06 - 0.11 - 0.04 - 0.05 = 0.2

Total
0.23
0.49
0.28
1

these students.

her weight to be?

xpected value (Mean) = E(X)
40 x 0.1

From Topic 2: Probability

pendent
Weight
Age
100 110 120 130 140 Total
19 0.02 0.09 0.09 0.01 0.02 0.23
20 0.06 0.15 0.2 0.05 0.03 0.49
21 0.02 0.06 0.11 0.04 0.05 0.28
Total 0.1 0.3 0.4 0.1 0.1 1
ollowing
Q4
You are trying to develop a strategy for investing in two different stocks. The a
annual return for a $1,000 investment in each stock has the following probabil

Returns
Stock X Stock Y Probability
-$ 50 -$ 100 0.1
$ 20 $ 50 0.3
$ 100 $ 130 0.4
$ 150 $ 200 0.2

a) For each stock, compute the expected return and the standard deviation

Stock X:
Expected return = (-50)(0.1)+(20)(0.3)+(100)(0.4)+(150)(0.2)= 71
SD of return = square root of variance
=
= 61.88

Stock Y:
Expected return = (-100)(0.1)+(50)(0.3)+(130)(0.4)+(200)(0.2) = 97
SD of return =
= 84.27

b) Do you think that you will invest in stock X or stock Y? Explain

(Depending on the preference of investors)
--> Larger SD --> higher volatility and unstable
--> Smaller SD --> more stable and reliable
Ans:
Stock Y gives investor higher expected return than stock X (97 > 71), but al
--> (higher volatility = fluctuation, the curve is flatter)

--> a risk-averse investor (who prefer stable more than risky) should in

--> Investor who is willing to take a higher risk can expect a higher retur
ent stocks. The anticipated
ollowing probability distribution:

ndard deviation of return.

 From Topic 1

(97 > 71), but also a higher standard deviation (84.27 > 61.88).

risky) should invest in stock X (more stable & reliable)

ct a higher return from stock Y.

Q5
When a customer places an order with Rudy’s On-Line Office Supplies, a com
accounting information system (AIS) automatically checks to see if the custom
exceeded his or her credit limit. Past records indicate that the probability of c
exceeding their credit limit is 0.05. Suppose that, on a given day, 20 custo
Assume that the number of customers that the AIS detects as having exceede
limit is distributed as a binomial random variable.

a) What are the mean and standard deviation of the number of customers e
X = no. of customers that the AIS detects as having exceeded their credit limit
π = success probability = 0.05
n = no. of customers place order = 20

∵ X is binomial distribution X ~B(n=20, π =0.05)

Mean (𝜇) = 𝑛𝜋 𝜎 = 𝑛𝜋(1−𝜋)

^2
= 20*(0.05) = 20(0.05)(1-0.05)
=1 = 0.95

b) What is the probability that 0 customers will exceed their limits?

P(X = 0) = (20 !)/(0 !(20 −0 )!)

〖 (0.05 〗 ^0) 〖 "(1 - "
0.05")" 〗 ^((20−0))
= 0.3585

c) What is the probability that 1 customer will exceed his or her limit?

P(X = 1) = (20 !)/(1 !(20 −1 )!)

〖 (0.05 〗 ^1) 〖 "(1 - "
0.05")" 〗 ^((20−1))
= 0.3774

d) What is the probability that 2 or more customers will exceed their limits?
P(X ≥ 2) = 1 - P(X=0) - P(X=1)
= 1- 0.3585 - 0.3774
= 0.2642
e Supplies, a computerized
see if the customer has
e probability of customers
en day, 20 customers place orders.
s having exceeded their credit

er of customers exceeding their credit limits?

heir credit limit

σ = √(𝑛𝜋(1−𝜋)) √(𝜎^2 )
√0.95
OR
=
= 0.9747

P(X = x) = (𝑛 !)/(𝑥 !(𝑛

−𝑥 )!) 𝜋^𝑥 〖 "(1 - "
eir limits?

𝜋")" 〗 ^((𝑛−𝑥))

or her limit?

ceed their limits?

Q7
A task force of CityU sampled 200 students after the mid-term test to ask them
went shopping the weekend before the mid-term test or spent the weekend st
whether they did well or poorly on the mid-term test. The following result was

Did Well on Mid-Term Test Did Poorly on Mid-T

Studied for Mid-Term Test 90 10
Went Shopping 30 70

a) What is the probability that a randomly selected student did well on the m
went shopping the weekend before the mid-term test?

P(A or B) = P(A) + P(B)

P(did well or went shopping) = P(did well) + P(went shopping)

((90+30+70))/200
=
190/200
=
= 0.95

b) A random sample of 10 students is selected. What is the probability that

well on mid-term test and studied for mid-term test the weekend before th
test? What distribution are you using? Why can you use such distribution?

Binomial distribution is used since

1. no. of trials is fixed --> n = 10 students

2. two mutually exclusive outcomes --> (If they went shopping, th
3. independent trials -->The responses from each student rega
One student's choice to go shoppin

4. probability of success is constant (π) --> (study & did well)

P(did well and study)
= 90/200
= 0.45
 P(did well and study)
= 90/200
= 0.45

Let X be the no. of students did well on mid-term test and studied for m
weekend before the mid-term test out of the selected 10 students
X ~ B(x=2, n = 10, π = 0.45)

P(X = 2) = (10 !)/(2 !(10 −2 )!) 〖 0.45 〗 ^2

〖 "(1 - " 0.45")" 〗 ^((10−2))
= 0.0763
term test to ask them whether they
pent the weekend studying, and
following result was obtained.

Did Poorly on Mid-Term Test

10
70

ent did well on the mid-term test or

(went shopping)

the probability that 2 of them did

P(did well and study for mid term)
e weekend before the mid-term
such distribution?

ey went shopping, they didn't spend the same weekend studying, vice versa)
m each student regarding their weekend activities and test performance are assumed
oice to go shopping or study does not affect another student's choice.

dy & did well)

ell and study)
0
ell and study)
0

est and studied for mid-term test the

ed 10 students
P(X = x) = (𝑛 !)/(𝑥 !(𝑛
−𝑥 )!) 𝜋 ^𝑥 〖 "(1 - "
𝜋")" 〗 ^((𝑛−𝑥))
g, vice versa)
mance are assumed to be independent.
t's choice.
Q8
Suppose that 1,000 patrons of a restaurant were asked whether they preferre
70% said that they preferred beer. 60% of patrons were male. 80% of the

Male Female Total

Beer 0.48 0.22 0.7
Wine 0.12 b) 0.18 a) 0.3
Total 0.6 0.4 1

a) What is the probability a randomly selected patron prefers wine?

P(Wine) = 1 - 0.7
= 0.3

b) What is the probability a randomly selected patron is female and prefers w

P(Beer and male) = 0.8*0.6
= 0.48
=> P(wine and male)= 0.6- 0.48 = 0.12
=> P(wine and female) = 0.3-0.12 = 0.18

c) Suppose a randomly selected patron prefers wine (B), what is the probab
--> Conditional Probability

P(male | wine) = P(male and wine) / P(wine)

= 0.12/0.3
= 0.4

d) Suppose 5 patrons were selected, what is the probability that at least fou
-->Binomial distribution

1. no. of trials is fixed --> n = 5 patrons

2. two mutually exclusive outcomes --> (If they are male, they
 3. independent trials -->The responses from each patron regarding
One patron's choice to prefer beer or w

4. probability of success is constant (π) --> (beer & all gender)

Define X be the number of patrons prefer beer in the 5 selected patron

P(X = x) = (𝑛
X~B(5, 0.7) Binomial: n=5, π=0.7
−𝑥 )!) 𝜋^𝑥 〖
P (≥ 4 patrons) = P (x=4) + P(x=5) 𝜋")" 〗 ^((𝑛−
hether they preferred beer or wine.
e male. 80% of the males preferred beer.
From the 60% of male patrons

ers wine?

male and prefers wine?

what is the probability that the patron is a male (A)?

ity that at least four of them prefer beer?

they are male, they cannot be female, vice versa)

ch patron regarding their selction and gender are assumed to be independent.
o prefer beer or wine does not affect another patron's choice.

eer & all gender)

e 5 selected patrons, Male Female Total

P(X = x) = (𝑛 !)/(𝑥 !(𝑛

Beer 0.48 0.22 0.7
−𝑥 )!) 𝜋^𝑥 〖 "(1 − " Wine 0.12 0.18 0.3
𝜋")" 〗 ^((𝑛−𝑥)) Total 0.6 0.4 1
e independent.