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AMBA 600 Problem Set 2 (UMUC)

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Probability
1. Suppose that the mean of the annual return for common stocks from 2000 to 2012 was 14.37%,
and the standard deviation of the annual return was 35.14%. Suppose also that during the same 12year time span, the mean of the annual return for long-term government bonds was 0.6%, and the
standard deviation was 2.1%. The distributions of annual returns for both common stocks and longterm government bonds are bell-shaped and approximately symmetric in this Assume that these
distributions are distributed as normal random variables with the means and standard deviations
given previously.
Find the probability that the return for common stocks will be greater than 16.32%.
Find the probability that the return for common stocks will be greater than 5.89%.
Find the probability that the return for common stocks will be less than 14.37%.
Hint: There are many ways to attack this problem in the HW. If you would like the normal distribution
table so you can draw the pictures (my preferred way of learning) then I suggest you bookmark this
site:
http://www.statsoft.com/textbook/sttable.html
Confidence Interval Estimation
2. Compute a 95% confidence interval for the population mean, based on the sample
1.5, 1.54, 1.55, 1.51, 0.09, 0.08, 1.55, 0.07, 0.99, 0.98, 1.12, 1.13, 1.00, 1.56, and 1.53.
Change the last number from 1.53 to 50 and recalculate the confidence interval. Using
the results, describe the effect of an outlier or extreme value on the confidence interval.
Hypothesis Testing
The management of the Ceebler Fairy Corporation is considering relocating the
corporate office to a new location outside HisWood Forest. Management is concerned
that the commute times of the employees to the new office might be too long.The
company decides to survey a sample of employees at other companies in the same
office forest to see how long these employees are commuting to the office. A sample of
23 employees indicated that the employees are commuting X (bar) = 33 minutes and s
= 1 minute, 45 seconds.
Using the 0.01 level of significance, is there evidence that the population mean is above
32 minutes?
What is your answer in (a) if X (bar) = 37 minutes and s = 27 minutes?
Look at your answers for a and b above and discuss what you can learn from the results
about the effect of a large standard deviation.
4. Peters NEW IT Help company is concerned that the mean wait time of their phone customers for
a customer service agent is not greater than 15 minutes. It can be assumed that the population
variance is 9 minutes 6 seconds based on past experience. A sample of 563 customers is selected

and the sample mean is 16 minutes 30 seconds. Using a level of significance of .10, is there
evidence that the population mean wait time is greater than 15 minutes? Fully explain your answer.