Introduction to Probability and Statistics

(TERM- I/ AY 2018-19/PGP Indore)

Midterm - August 13, 2018
Total points - 100.
Duration: 3 hours
Allowed: Only a calculator; It is closed book, closed-notes examination.
Instruction: Attempt all questions..

Full Name:

Roll No.: Section:

Question Points Score

1 2
2 2
3 2
4 2
5 2
6 2
7 2
8 2
9 2
10 2
11 2
12 2
13 2
14 2
15 2
16 2
17 2
18 2
19 2
20 2
21 10
22 9
23 5
24 7
25 6
26 5
27 6
28 6
29 6
Total: 100
Multiple Choice Questions: [1-18]
1. (2 points) Two events A and B, are statistically dependent. If P (A) = 0.39, P (B) = 0.21, P (A ∪ B) =
0.47, then what is the probability that Neither A nor B will occur?
A. 0.63 B. 0.53 C. 0.73 D. 0.93

2. (2 points) Two events A and B, are statistically dependent. If P (A) = 0.39, P (B) = 0.21, P (A ∪ B) =
0.47, then what is the probability that B will occur, given that A has occurred?
A. 1/3 B. 2/3 C. 1 D. None of these
3. (2 points) The projected probability of increase in online holiday sales from 2004 to 2005 is 80% in the
United States, 90% in Australia, and 85% in Japan. Assume these probabilities are independent. What
is the probability that holiday sales will increase in at least one country from 2004 to 2005?
A. 0.333 B. 0.667 C. 0.250 D. 0.997
4. (2 points) In throwing two fair dice, which total is most likely to occur?
A. 4 B. 6 C. 7 D. 10

5. (2 points) A box has 20 screws, three of which are known to be defective. What is the probability that
exactly one of the first two screws taken out of the box are defective?
A. 0.1342 B. 0.2684 C. 0.0158 D. None of the above
6. (2 points) A car gets involved in an accident 80% of the time if it is defective. If it is not defective, the
probability reduces to 40%. 30% of all cars are defective. If a car is involved in an accident, what is the
probability that it was defective?
A. 0.24 B. 0.4615 C. 0.12 D. 0.0343
7. (2 points) The number of intercity shipment orders arriving daily at a transportation company is a
random variable X with the following CDF:

X 1 2 3 4
F (x) 0.3 0.4 0.9 1

E[X] is
A. 2.1 B. 8.4 C. 0.65 D. None of these

8. (2 points) Suppose that P (X = 0) = 1 − P (X = 1). If E(X) = 3 V ar(X), then P (X = 0) is:

A. 2/3 B. 1/3 C. 1/2 D. None of these
9. (2 points) Let X be a discrete random variable such that X(Ω) = {0, 1, 2}. If E(X) = 1 and V (X) = 0,
then what is the value of P (X = 1)?
A. 0 B. 1/3 C. 0.5 D. 1
10. (2 points) Suppose a marketing sales person from SBI credit card is randomly approaching customers
standing at the checkout counter of Big Bazaar in Indore. Let X be the total number of customers he
approached until 10 people signed up for the credit card. What is the distribution of X?
A. Binomial B. Poisson C. Exponential D. None of the above

11. (2 points) Suppose X ∼ P oisson(λ), and that 5P (X = 5) = 2P (X = 4). Then, E(X) is given by:
A. 2 B. 4 C. 5 D. None of these
12. (2 points) Values are Uniformly distributed between 200 and 240. The value of f (x), the probability
density function in the above range is:
A. 0.035 B. 0.045 C. 0.025 D. None of these

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13. (2 points) Values are Uniformly distributed between 200 and 240. The mean and standard deviation
(in this order) is:
A. (230, 12.547) B. (240, 11.547) C. (220, 12.547) D. (220, 11.547)

14. (2 points) Suppose X ∼ U nif orm(a, b), such that E(X) = 1 and V ar(X) = 1/3. Then the pair (a, b) is
given by:
A. (0.5,1.5) B. (-1,3) C. (0,2) D. None of these
15. (2 points) If X is exponentially distributed, then P (X ≥ 5 | λ = 1.35) is
A. 0.062 B. 0.082 C. 0.092 D. None of these
16. (2 points) Suppose the length of service time in a bank-counter is an exponential random variable with
parameter λ = 0.1. If someone arrives immediately ahead of you at the counter, the probability that you
have to wait for more than 20 minutes, given that you already have waited for more than 10 minutes is:
A. e−20 B. e−1 C. e−1 − e−2 D. e−2

17. (2 points) The probability of a vending machine at IIM Delhi will dispense the desired item when correct
change is inserted is 0.80. If 200 PhD students try the machine, what is the probability that at most
164 will receive the desired item? Let X be the number of PhD students, out of 200, who will receive
the desired item.
A. P (X = 164) B. P (Z ≤ 1) C. P (Z ≤ 1.125) D. 0.1302945

18. (2 points) GMAT scores of students follow a Normal distribution with mean 80 and variance 25. Given
z0.05 = 1.645, the 95th percentile score:
A. is less than 80 B. is more than 90 C. is between 80 and 85 D. is between 85 and 90

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 Very Short Answer Type [19-20]
19. (2 points) Flight 202 is departing Los Angeles. For each of the following, specify whether the random
variable is discrete (D) or continuous (C).
A. Number of airline passengers traveling with children under age 3.
B. Proportion of passengers traveling without checked luggage.
C. Weight of a randomly chosen passenger on Flight 202.
D. The waiting time for a passenger at the check-in counter.

20. (2 points) “A psychology test consists of 10 questions. The first five are true-false questions, the last
five are multiple choice with four possible answers each. A student guesses the answer (that is picks an
answer at random) for each of the 10 questions on the test.” Let X be the number of correct answers out
of 10. Does X ∼ bin(10, p)? If yes, what is p? If no, explain why (be precise - do not write a paragraph).

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 Short Answer Type [21-29]
21. (10 points) An independent research group has been studying the chances that an accident at a nuclear
power plant will result in radiation leakage. The group considers that the only possible types of accidents
at a reactor are fire, mechanical failure, and human error, and that two or more accidents never occur
together. It has performed studies that indicate that if there were a fire, a radiation leak would occur
20 percent of the time; if there were a mechanical failure, a radiation leak would occur 50 percent of the
time; and if there were a human error, a radiation leak would occur 10 percent of the time. Its studies
have also shown that the probability of:
• A fire and a radiation leak occurring together is 0.0010
• A mechanical failure and a radiation leak occurring together is 0.0015
• A human error and a radiation leak occurring together is 0.0012
1. What are the respective probabilities of a fire, mechanical failure, and human error? [3 points]
2. What are the respective probabilities that a radiation leak was caused by a fire, mechanical failure,
and human error? [3 points]
3. What is the probability of a radiation leak? [4 points]

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22. (9 points) A small brewery has two bottling machines. Machine A produces 75% of the bottles and
machine B produces 25%. One out of every 20 bottles filled by A is rejected for some reason, while one
out of every 30 bottles from B is rejected.

1. What proportion of bottles is rejected? [2 points]

2. What is the probability that a randomly selected bottle comes from machine A, given that it is
accepted? [4 points]
3. Suppose the brewery decides to improve the probability in part (2) of this question to 0.9, by re-
allocating production percentages of two machines. Then what percent of total production should
be alotted to machine A? [3 points]

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23. (5 points) On average there are two arrests per day for DUI at Khandwa square on Indore bypass. What
is the probability that there will be at least two days in a given week with no arrests?

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24. (7 points) During the summer at a small private airport in western Nebraska, the unscheduled arrival
of airplanes is Poisson distributed with an average arrival rate of 1.12 planes per hour.
1. What is the average interarrival time between planes? [2 points]
2. What is the probability that at least 2 hours will elapse between plane arrivals? [2 points]
3. What is the probability of two planes arriving less than 10 minutes apart? [3 points]

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25. (6 points) The number of eggs laid on a tree leaf by an insect of a certain type is a Poisson random
variable with parameter λ. However, such a random variable can be observed only if it is positive, since
if it is 0, then we cannot know that such an insect was on the leaf. Let Y denote the observed number
of eggs. Then, the pmf of Y is given by

P (Y = i) = P (X = i | X > 0), i = 1, 2, . . . ,

where X ∼ P oisson(λ). Find E(Y ).

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26. (5 points) An oral surgeon injects a painkiller prior to extracting a tooth. Given the varying charac-
teristics of patients, the dentist views the time for anesthesia effectiveness (X) as a triangular random
variable, denoted by T (a, b, c), that takes between 15 minutes (a) and 30 minutes (c), with 20 minutes (b)
as the most likely time. Find the median time for anesthesia effectiveness if the cumulative distribution
function of X is given by

 0 u<a
(u − a)2



a≤u<b


(b − a)(c − a)

FX (u) =
(c − u)2
1− b≤u<c


(c − a)(c − b)




1 c ≤ u.


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27. (6 points) Glenn Howell, VP of personnel for the Standard Insurance Company has developed a new
training programme that is entirely self-paced. New employee’s work various stages at their own pace,
completion occurs when the material is learned. Howell’s programme has been especially effective in
speeding up the training process, as an employee’s salary during training is only 67% of that earned
upon completion of the programme. In the last several years, average completion of the programme has
been in 44 days, with a standard deviation of 12 days.
1. Find the probability that an employee will finish the programme in 33 to 42 days. [2 points]
2. What is the probability of finishing the programme in fewer than 30 days? [2 points]
3. What is the probability that fewer than 25 or more than 60 days will be required in finishing the
programme? [2 points]
Table Values: For Z ∼ N (0, 1), P (0 ≤ Z ≤ 0.92) = 0.3212, P (0 ≤ Z ≤ 0.17) = 0.0675, P (0 ≤ Z ≤
1.17) = 0.3790, P (0 ≤ Z ≤ 1.58) = 0.4429, P (0 ≤ Z ≤ 1.33) = 0.4082.

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28. (6 points) Suppose that a binary message, either 0 or 1, must be transmitted by wire from location A
to location B. However, the data sent over the wire are subject to a channel noise disturbance, so, to
reduce the possibility of error, the value 2 is sent over the wire when the message is 1 and the value -2
is sent when the message is 0. If x(x = ±2) is the value sent at location A, then R, the value received
at location B is given by R = x + N , where N is the channel noise disturbance. When the message is
received at location B, the receiver decodes it according to the following rule:
• If R ≥ 0.5, then message is 1.
• If R < 0.5, then message is 0.

Assume that channel noise follows a standard normal distribution. Find the error probabilities, that is,
probability of reading the message as 0 when the true message is 1, and reading the message as 1 when
the true message is 0.

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29. (6 points) Gabbar, the terror of Ramgarh, decided to retire after earning a lot from his loots and live
a peaceful life with the endowment. As he concretized his decision, he called upon his left and right
hands Sambha and Kalia for a split of their wealth. Sambha, being the smartest and aware of the new
world, advised his sardar that they need not to split the actual amount but can have proportion of shares
noted and the money could be invested through his friend’s company Dhandabazi.com.The return will be
divided in proportion to their share and would become their pension for the retired life. Although a bit
skeptical about giving away his financial independence to a company, Gabbar finally agreed. Sambha’s
friend and CEO of Dhandabazi.com, Mr.Paisadubanewala, was happy to receive such a large fund to
manage . Immediately he hired one MBA to handle the investment. Before the first meeting with the
clients, the MBA looked into the equity market and the bond market. The rate of return of bonds were
fixed at 7% annually. However due to the uprising promises and endorsements of their projects (yet to
be done), JIOJI and Templedoom Inc. caught the MBA’s attention for investment. Current price of
the shares are $132 and $81 respectively for JIOJI and Templedoom. The BadEconomyTimes show the
analyst’s prediction as follows:

JIOJI TempleDoom
Gain probability Gain Probability
396 0.25 8100 0.73
264 0.3 -80 0.27
0 0.15
-264 0.3

If Gabbar and his friends are eager to invest today itself in one of these prosperous companies, then
what should be the suggestion of the MBA? Justify your answer with statistical computation.

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List of formula and necessary values:
1. P (A | B) = P (A ∩ B)/P (B)
2. If A1 , A2 , . . . Ak forms a partition of Ω, then P (B) = P (B | A1 )P (A1 ) + . . . + P (B | Ak )P (Ak )
3. P (A ∪ B) = P (A) + P (B) − P (A ∩ B)
P
4. If X is a discrete r.v., then E(h(X)) = h(u)P (X = u)
u
R
5. If X is a continuous r.v., then E(h(X)) = u h(u)f (u)du
6. Bin(1, p) ≡ Ber(p)
n
X
7. If Y1 , Y2 , . . . Yn are iid Ber(p), then X = Yi ∼ Bin(n, p)
i=1
n


8. If X ∼ Bin(n, p), P (X = k) = k pk (1 − p)n−k , for k = 0, 1, . . . n; E(X) = np, V (X) = npq.
k
9. If X ∼ P oi(λ), P (X = k) = e−λ λk! , for k = 0, 1, . . . n; E(X) = λ, V (X) = λ.
10. If X ∼ U (a, b), f (x) = 1/(b − a) for u ∈ (a, b), and 0 otherwise;
E(X) = (a + b)/2,and V (X) = (b − a)2 /12

11. If X ∼ Exp(λ), f (u) = λe−λu for u > 0, and 0 otherwise;

E(X) = λ1 ,and V (X) = λ12 . CDF: F (x) = 1 − e−λx , x > 0.

 
1 1
12. If X ∼ N (µ, σ 2 ), f (x) =
√ exp − 2 (x − µ)2 , for all x; E(X) = µ,and V (X) = σ 2 .
σ 2π 2σ
13. CDF of standard Normal : Φ(x).

x 0 0.05 0.08 0.1 0.5 0.75 1 1.25 1.5 2.5

Φ(x) 0.5 0.5199 0.5319 0.5398 0.6915 0.7734 0.8413 0.8944 0.9332 0.9938

µ − rf
14. Sharpe Ratio = , where rf is the risk free rate.
σ

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