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Due at November 16
Assignment 2: Binomial Distribution, Continuous Random Variables and
Sampling
1. Suppose a firm wishes to raise funds and there are a large number of independent
financial lenders who might lend from 0 to $10 million dollars each. The total amount
raised follows a uniform distribution from 0 to $10n million dollars, where n is the
number of lenders. If the firm is to have at least 80% chance of raising at least $100
million dollars what is the minimum number of lenders that should be contacted?
Solution: This is a uniform distribution question. Let X be the total amount raised.
X is distributed uniformly on [0,10n].
1
The density function is: f (x) = 10n
The probability of raising more than $100 is at least 80%
P (X > 100) = 1 P (X < 100) = 1
100
80%
10n
n 50
At least 50 lenders should be contracted.
2. The probability that a person catches a cold during the cold and flu season is 0.4.
Assume that 10 people are chosen at random.
Solution: This is a binomial question. A success occurs when a person catches a
cold during the cold and flu season. The probability of a success is 0.4. Let X be the
number of successes in 10 people.
(a) What is the probability that exactly 4 people have the flu?
P (X = 4) = (
10
)(0.4)4 (0.6)6 = 0.2508
4
(b) What is the probability that between 2 and 5 people inclusive have the flu?
P (2 X 5) = P (X 5) P (X 1) = 0.834 0.046 = 0.788
(c) What is the expected number of people with the flu and what is its variance?
E[X] = = np = 10 0.4 = 4
V [X] = 2 = np(1 p) = 2.4
1
(d) Approximate your answer in (b) using the normal approximation with and without
continuity corrections.
Without continuity correction:
24
54
X
P (2 X 5) P (
)
2.4
2.4
= P (1.2910 Z 0.6455)
= F (0.6455) (1 F (1.2910))
= 0.7406 (1 0.9015) = 0.6421
With continuity correction:
5.5 4
X
1.5 4
)
P (2 X 5) P (
2.4
2.4
= P (1.6137 Z 0.9682)
= F (0.9682) (1 F (1.6137))
= 0.834 (1 0.9463) = 0.7803
3. The following table displays the joint probability distribution of X and Y.
X/Y
0
1
2
0
.13
.16
.07
1
2
.08 .02
.14 .23
.04 .13
Solution:
(a) What is the covariance and correlation between the X and Y? Are these variables
independent? Explain.
X
E[X] = X =
xP (x) = 1.01
X
E[Y ] = Y =
yP (y) = 1.02
X
V [X] = X 2 =
(X X )2 P (x) = 0.4699
X
V [Y ] = Y 2 =
(Y Y )2 P (y) = 0.7396
XX
Cov(X, Y ) = E(XY ) X Y =
xyP (x, y) X Y = 0.1698
X
0.1698
Cov(X, Y )
=
= 0.2880
Corr =
X Y
0.4699 0.7396
Thus
k = Zk + = 1(5.2) + 61.7 = 66.9
3
X =
2
(b) Find the value that leaves .05 in the lower tail and also the value that leaves .05
in the upper tail.
XL 0
XL = 7.5
150
150 XU
0.05 =
XU = 142.5
150
0.05 =
(c) Suppose that you do not know that the variable is uniform but are given the mean
and variance from (a). Calculate the same magnitudes for (b).
<Z<
)
34
34
= P (0.6860 < Z < 1.0290) = F (1.03) F (0.69) = 0.0936
P (1 < C < 1) = P (
(c) To give the class the same mean as the second class, the professor adds 5 to all
grades. Explain why this does not leave the two classes equivalent. Which class
would you prefer to be in?
8. A car company says their car gets a mean of 45km per liter with a standard deviation
of 6. Suppose we assume a normal distribution.
Solution:
(a) Suppose some sales representative claims you will get at least 47 80% of the time,
what can you tell him?
1
47 45
) = P (Z ) = 1 F (0.333) = 0.3707
6
3
4 < 46).
(b) If we have 4 cars and take the average, calculate the P (44 < X
P (X 47) = P (Z
45
46 45
4 < 46) = P ( 44
<Z<
)
P (44 < X
6/ 4
6/ 4
= P (0.3333 < Z < 0.3333) = F (0.33) (1 F (0.33))
= 2(0.6293) 1 = 0.2586
5
9. Suppose you wish to drive across a country that is 2625 km wide and you intend to
rent a series of cars from Rent-A-Wreck. The distance that the first car they give you
is normally distributed with a mean distance of 1500km and a variance of 500km. Each
subsequent car you rent gets 50% less km on average than the previous one with a 75%
reduction in the variance.
(a) Try to formulize this problem.
(b) What is the probability that the trip can be done using exactly 2 cars?
(c) What is the probability that you do the trip with more than 3 cars?
(d) If each car costs $100 what is the expected cost of the trip?
(e) Approximate the expected length of the farthest trip that can be taken.
Let Xi be the distance travelled by car i
X1 N (1500, 500)
X2 N (750, 125)
X3 N (375, 31.5)
...
and so on
Consider the first car
1
>
P (X1 > 2625) = P ( X1
1
26251500
)
500
P (Z > 50.3) 0
Consider the distance traveled by the first car and then the second car
2 (1 +2 ) >
P (X1 + X2 > 2625) = P ( X1 +X
2
2
1 + 2
2625(1500+750)
)
500+125
P (Z > 15) 0
2625(1500+750+375)
)
500+125+31.5
P (Z > 0) = 0.5
So
n=3
Expected cost of the trip is $300.
Farthest trip possible T (geometric series)
T = X1 + X2 + X3 + ... =
1
X1
1 0.5