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Chapter 6:

Continuous Random Variables and Probability


Distributions

6.1 P(1.4 < X < 1.8) = F(1.8) F(1.4) = (.5)(1.8) (.5)(1.4) = 0.20
6.2 P(1.0 < X < 1.9) = F(1.9) F(1.0) = (.5)(1.9) (.5)(1.0) = 0.45
6.3 P(X < 1.4) = F(1.4) = (.5)(1.4) = 0.7
6.4 P(X > 1.3) = F(1.3) = (.5)(2.0) (.5)(1.3) = 0.35
6.5 a.

Probability Density Function: f(x)


1.5
f(x)

1.0

0.5

0.0
0

Chapter 6: Continuous Random Variables and Probability Distributions

b.
Cumulative distribution function: F(x)
F(x)

1.0

0.8

0.6

0.4

0.2

0.0
0.0

0.2

0.4

0.6

0.8

1.0

C17

c. P(X < .25) = .25


d. P(X >.75) = 1-P(X < .75) = 1-.75 = .25
e. P(.2 < X < .8) = P(X <.8) P(X <.2) = .8 - .2 = .6
6.6 a.

Probability density function: f(x)


0.75
f(x)

0.50

0.25

0.00
0

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Statistics for Business & Economics, 6 edition

b.
Cumulative density function: F(x)
1.0

F(x)

0.8

0.6

0.4

0.2

0.0

c. P(x < 1) = .25


d. P(X < .5) + P(X > 3.5)=P(X < .5) + 1 P(X < 3.5) = .25
6.7 a. P(60,000 < X< 72,000) = P(X < 72,000) P(X < 60,000) = .6 - .5 = .1
b. P(X < 60,000) < P(X < 65,000) < P(X < 72,000); .5 < P(X < 65,000)
< .6
6.8 a. P(380 < X < 460) = P(X < 460) P(X < 380) = .6 - .4 = .2
b. P(X < 380) < (PX< 400) < P(X < 460); .4 < P(X < 400) < .6
6.9 W = a + bX. If TC = 1000 + 2X where X = number of units produced, find
the mean and variance of the total cost if the mean and variance for the
number of units produced are 500 and 900 respectively. W = a + b x = 1000
+ 2(500) = 2000. 2W = b 2 2 X = (2)2(900) = 3600.
6.10 W = a + bX. If Available Funds = 1000 - 2X where X = number of units
produced, find the mean and variance of the profit if the mean and variance
for the number of units produced are 50 and 90 respectively. W = a + b x =
1000 - 2(50) = 900. 2W = b 2 2 X = (-2)2(90) = 360.
6.11 W = a + bX. If Available Funds = 2000 - 2X where X = number of units
produced, find the mean and variance of the profit if the mean and variance
for the number of units produced are 500 and 900 respectively. W = a + b x
= 2000 - 2(500) = 1000. 2W = b 2 2 X = (-2)2(900) = 3600.

Chapter 6: Continuous Random Variables and Probability Distributions

6.12

W = a + bX. If Available Funds = 6000 - 3X where X = number of units


produced, find the mean and variance of the profit if the mean and
variance for the number of units produced are 1000 and 900 respectively.
W = a + b x = 6000 - 2(1000) = 4000. 2W = b 2 2 X = (-3)2(900) = 8100

6.13

Y = 10,000 + 1.5 X = 10,000 + 1.5 (30,000) = $55,000


Y = |1.5| X = 1.5 (8,000) = $12,000

6.14

Y = 20 + X = 20 + 4 = $24 million
Bid = 1.1 Y =1.1(24) = $26.4 million, = $1 million

6.15

Y = 60 + .2 X = 60 + 140 = $200
Y = |.2| X = .2 (130) = $26

6.16

Y = 6,000 + .08 X = 6,000 + 48,000 = $54,000


Y = |.08| X = .08(180,000) = $14,400

6.17

a.
b.
c.
d.
e.
f.
g.

P(Z < 1.20) = .8849


P(Z > 1.33) = 1 Fz(1.33) = 1 - .9082 = .0918
P(Z < -1.70) = 1 Fz(1.70) = 1 - .9554 = .0446
P(Z > -1.00) = Fz(1) = .8413
P(1.20 < Z < 1.33) = Fz(1.33) Fz(1.20) = .9082 - .8849 = .0233
P(-1.70 < Z < 1.20) = Fz(1.20) [1 - Fz(1.70)] = .8849 .0446 = .8403
P(-1.70 < Z < -1.00) = Fz(1.70) Fz(1.00) = .9554 - .8413 = .1141

6.18

a.
b.
c.
d.

Find Z0 such that P(Z < Z0) = .7, closest value of Z0 = .52
Find Z0 such that P(Z < Z0) = .25, closest value of Z0 = -.67
Find Z0 such that P(Z > Z0) = .2, closest value of Z0 = .84
Find Z0 such that P(Z > Z0) = .6, closest value of Z0 = -.25

6.19

X follows a normal distribution with = 50 and 2 = 64


60 50
a. Find P(X > 60). P(Z >
) = P(Z > 1.25)
8
= .5 - .3944 = .1056
35 50
62 50
b. Find P(35 < X < 62). P(
<Z<
) = P(-1.88 < Z < 1.5)
8
8
= .4699 + .4332 = .9031
55 50
c. Find P(X < 55). P(Z <
) = P(Z < .62)
8
= .5 + .2324 = .7324
d. Probability is .2 that X is greater than what number? Z = .84.
X 50
.84 =
X = 56.72
8

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e. Probability is .05 that X is in the symmetric interval about the mean


X 50
between? Z = +/- .06. .06 =
. X = 49.52 and 50.48.
8
6.20

X follows a normal distribution with = 80 and 2 = 100


60 80
a. Find P(X > 60). P(Z >
) = P(Z > -2.00) = .5 + .4772 = .9772
10
72 80
82 80
b. Find P(72 < X < 82). P(
<Z<
) = P(-.80 < Z < .20) =
10
10
.2881 + .0793 = .3674
55 80
c. Find P(X < 55). P(Z <
) = P(Z < -2.50) = .5 - .4938 = .0062
10
d. Probability is .1 that X is greater than what number? Z = 1.28.
X 80
X = 92.8
1.28 =
10
e. Probability is .08 that X is in the symmetric interval about the mean
X 80
between? Z = +/- .10. .10 =
. X = 79 and 81.
10

6.21

X follows a normal distribution with = .2 and 2 = .0025


.4 .2
a. Find P(X > .4). P(Z >
) = P(Z > 4.00) = .5 - .5 = .0000
.05
.15 .2
.28 .2
b. Find P(.15 < X < .28). P(
<Z<
) = P(-1.00 < Z <
.05
.05
1.60) = .3431 + .4452 = .7883
.10 .20
c. Find P(X < .10). P(Z <
) = P(Z < -2.00) = .5 - .4772 = .0228
.05
d. Probability is .2 that X is greater than what number? Z = .84.
X .20
.84 =
X = .242
.05
e. Probability is .05 that X is in the symmetric interval about the mean
X .2
between? Z = +/- .06. .06 =
. X = .197 and .203.
.05

6.22

400 380
) = P(Z < .4) = .6554
50
360 380
b. P(Z >
) = P(Z > -.4) = FZ(.4) = .6554
50
c. The graph should show the property of symmetry the area in the tails
equidistant from the mean will be equal.
300 380
400 380
d. P(
<Z<
) = P(-1.6 < Z < .4) = FZ(.4) [150
50
FZ(1.6)] = .6554 - .0548 = .6006
a. P(Z <

Chapter 6: Continuous Random Variables and Probability Distributions

e. The area under the normal curve is equal to .8 for an infinite number
of ranges merely start at a point that is marginally higher. The
shortest range will be the one that is centered on the z of zero. The z
that corresponds to an area of .8 centered on the mean is a Z of 1.28.
This yields an interval of the mean plus and minus $64: [$316, $444]
6.23

6.24

6.25

6.26

1, 000 1, 200
) = P(Z > -2) =FZ(2) = .9772
100
1,100 1, 200
1,300 1, 200
<Z<
) = P(-1 < Z < 1) = 2FZ(1) 1 =
b. P(
100
100
.6826
c. P(Z > 1.28) = .1, plug into the z-formula all of the known information
Xi 1, 200
and solve for the unknown: 1.28 =
. Solve algebraically
100
for Xi = 1,328
a. P(Z >

38 35
) = P(Z > .75) = 1 - FZ(.75) = .2266
4
32 35
b. P(Z <
) = P(Z < -.75) = 1 - FZ(.75) = .2266
4
32 35
38 35
<Z<
) = P(-.75 < Z < .75) = 2FZ(.75) 1 =
c. P(
4
4
2(.7734) 1 = .5468
d. (i) The graph should show the property of symmetry the area in the
tails equidistant from the mean will be equal.
(ii) The answers to a, b, c sum to one because the events cover the
entire area under the normal curve which by definition, must sum to 1.
a. P(Z >

20 12.2
) = P(Z > 1.08) = 1 Fz (1.08) = .1401
7.2
0 12.2
) = P(Z < -1.69) = 1 Fz (1.69) = .0455
b. P(Z <
7.2
5 12.2
15 12.2
c. P(
<Z<
) = P(-1 < Z < .39) = Fz (.39) [1- Fz (1)] =
7.2
7.2
.6517 - .1587 = .4930
a. P(Z >

10 12.2
) = P(Z < - .79) = 1 Fz (.79) = .2148
2.8
15 12.2
b. P(Z >
) = P(Z > 1) = 1 Fz (1) = .1587
2.8
12 12.2
15 12.2
c. P(
<Z<
) = P(-.07 < Z < 1) = Fz (1) [1- Fz (.07)]
2.8
2.8
= .8413 - .4721 = .3692
a. P(Z <

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Statistics for Business & Economics, 6 edition

d. The answer to a. will be larger because 10 grams is closer to the mean


than is 15 grams. Thus, there would be a greater area remaining less
than 10 grams than will be the area above 15 grams.
460 500
540 500
<Z<
) = P(-.8 < Z < .8) = 2 Fz (.8) 1 = .5762
50
50
b. If P(Z < -.84) = .2, then plug into the z formula and solve for the Xi:
Xi 500
the value of the cost of the contract. -.84 =
. Xi = $458
50
(thousand dollars)
c. The shortest 95% range will be the interval centered on the mean.
Xi 500
Since the P(Z > 1.96) = .025, 1.96 =
. Xi = 598. The
50
Xi 500
lower value of the interval will be 1.96 =
which is Xi =
50
$402 (thousand dollars). Therefore, the shortest range will be 598
402 = $196 (thousand dollars).

6.27

a. P(

6.28

P(Z > 1.5) = 1 - Fz(1.5) = .0668

6.29

P(Z < -1.28) = .1, 1.28 =

6.30

P(Z > .67) = .25, .67 = 17.8 -


P(Z > 1.03) = .15, 1.04 = 19.2 -
Solving for , : = 15.265, 2 = (3.7838)2 = 14.317

6.31

6.32

Xi 18.2
Xi = 16.152
1.6

820 700
) = P(Z> 1) = 1 Fz (1) = .1587
120
730 700
820 700
b. P(
<Z<
) = P(.25 < Z < 1) = .8413 - .5987 =
120
120
.2426
Number of students = .2426(100) = 24.26 or 24 students
Xi 700
c. P(Z < -1.645) = .05, 1.645 =
, Xi = 502.6
120
a. P(Z >

For Investment A, the probability of a return higher than 10%:


10 10.4
P(Z >
) = P(Z > -.33) = FZ(.33) = .6293
1.2
For Investment B, the probability of a return higher than 10%
10 11.0
P(Z >
) = P(Z > -.25) = FZ(.25) = .5987
4
Therefore, Investment A is a better choice

Chapter 6: Continuous Random Variables and Probability Distributions

6.33

6.34

6.35

6.36

6.37

5 4.4
) = P(Z < 1.5) = .9332
.4
5 4.2
For Supplier B: P(Z <
) = P(Z < 1.33) = .9082
.6
Therefore, Supplier A has a greater probability of achieving less than 5%
impurity and is hence the better choice
For Supplier A: P(Z <

Xi 150
, Xi = 98.8
40
Xi 150
b. P(Z < .84) = .8, .84 =
, Xi = 183.6
40
120 150 2
c. P(X 1) = 1 P(X = 0) = 1-[P(Z<
)] = 1 [P(Z < -.75)]2 =
40
2
1 (.2266) = .9487

a. P(Z > -1.28) = .9, -1.28 =

60 75
) = P(Z < -.75) = .2266
20
90 75
) = P(Z >.75) = .2266
b. P(Z >
20
c. The graph should show that 60 minutes and 90 minutes are equidistant
from the mean of 75 minutes. Therefore, the areas above 90 minutes
and below 60 minutes by the property of symmetry must be equal.
Xi 75
d. P(Z > 1.28) = .1, 1.28 =
, Xi = 100.6
20
a. P(Z <

400 420
480 420
<Z<
) = P(-.25 < Z < .75) = Fz (.75) [1 FZ
80
80
(.25)] = .7734 - .4013 =.3721
Xi 420
b. P(Z > 1.28) = .1, 1.28 =
, Xi = 522.4
80
c. 400 439
d. 520 559
500 420 2
e. P(X 1) = 1 P(X = 0 ) = 1 [P(Z<
)] = 1 (.8413)2 =
80
.2922
a. P(

180 200
< Z < 0) = .5 [1- Fz (1)] = .5 -.1587 = .3413
20
245 200
b. P(Z >
) = 1 FZ(2.25) = .0122
20
c. Smaller
Xi 200
d. P(Z < -1.28) = .1, -1.28 =
, Xi = 174.4
20
a. P(

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Statistics for Business & Economics, 6 edition

P(Z < 1.5) = .9332, 1.5 =

85 70

, = 10

80 70
) = P(Z > 1) = .1587
10
P(X 1) = 1 P(X=0) = 1 [FZ(1)]4 = 1 (.8413)4 = .4990

P(Z >

6.39

n = 900 from a binomial probability distribution with P = .50


a. Find P(X > 500). E[X] = = 900(.5) = 450, = (900)(.5)(.5) = 15
500 450
P(Z >
) = P(Z > 3.33) = 1 FZ(3.33) = .0004
15
430 450
b. Find P(X < 430). P(Z <
) = P(Z < -1.33) = 1 - FZ(1.33) =
15
.0918
440 450
480 450
c. P(
<Z<
) = P(-.67 < Z < 2.00) = fz (-.67) +
15
15
fZ(2.00) = .2486 + .4772 = .7258
d. Probability is .1 that the number of successes is less than how many?
X 450
Z=
-1.28. 1.28 =
X = 430.8
15
e. Probability is .08 the number of successes is greater than? Z = 1.41.
X 450
1.41 =
. X = 471.15.
15

6.40

n = 1600 from a binomial probability distribution with P = .40


a. Find P(X > 1650). E[X] = = 1600(.4) =
640, = (1600)(.4)(.6) = 19.5959 P(Z >
1650 1600
) = P(Z > 2.55) = 1 FZ(2.55) =
19.5959
.0054
1530 1600
b. Find P(X < 1530). P(Z <
) = P(Z
19.5959
< -3.57) = 1 - FZ(3.57) = .0002
1550 1600
1650 1600
c. P(
<Z<
) = P(-2.55
19.5959
19.5959
< Z < 2.55) = (2)Fz (2.55) = (2).4946 =
.9892
d. Probability is .09 that the number of
successes is less than how many? Z =
X 1600
-1.34. 1.34 =
X=
19.5959
1573.741 1,574 successes

Chapter 6: Continuous Random Variables and Probability Distributions

e.

Probability is .20 the number of successes is


X 1600
greater than? Z = .84. .84 =
.
19.5959
X = 1616.46 1,616 successes

6.41

n = 900 from a binomial probability distribution with P = .10


a. Find P(X > 110). E[X] = = 900(.1) = 90,
110 90
= (900)(.1)(.9) = 9
P(Z >
)
9
= P(Z > 2.22) = 1 FZ(2.22) = .0132
53 90
b. Find P(X < 53). P(Z <
) = P(Z < 9
4.11) = 1 - FZ(4.11) = .0000
55 90
120 90
c. P(
<Z<
) = P(-3.89 < Z <
9
9
3.33) = 1.0000
d. Probability is .10 that the number of successes
is less than how many? Z =
-1.28.
X 90
1.28 =
X = 78.48
9
e. Probability is .08 the number of successes is
X 90
greater than? Z = 1.41. 1.41 =
. X=
9
102.69

6.42

n = 1600 from a binomial probability distribution with P = .40


a. Find P(P > .45). E[P] = = P = .40, =
P (1 P)
.4(1 .4)
= .01225 P(Z >
=
n
1600
.45 .40
) = P(Z > 4.082) = 1 FZ(4.082) =
.01225
.0000
.36 .40
b. Find P(P < .36). P(Z <
) = P(Z < .01225
3.27) = 1 - FZ(3.27) = .0005
.44 .40
.37 .40
c. P(
<Z<
) = P(3.27 < Z < .01225
.01225
2.45) = 1 [(2)[1-Fz (3.27)]] = 1 - (2)[1.9995] = .9995 - .0071 = .9924
d. Probability is .20 that the percentage of
successes is less than what percent? Z = -.84.
X .40
.84 =
P = 38.971%
.01225

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Statistics for Business & Economics, 6 edition

e. Probability is .09 the percentage of successes


X .40
is greater than? Z = 1.34. 1.34 =
. P
.01225
= 41.642%
6.43

6.44

6.45

n = 400 from a binomial probability distribution with P = .20


a. Find P(P > .25). E[P] = = P = .20, =
P (1 P)
.2(1 .8)
= .02
P(Z >
=
n
400
.25 .20
) = P(Z > 2.50) = 1 FZ(2.50) = 1 .02
.4938 = .0062
.16 .20
b. Find P(P < .16). P(Z <
) = P(Z < .02
2.00) = 1 - FZ(2.00) = .0228
.17 .20
.24 .20
c. P(
<Z<
) = P(-1.50 < Z <
.02
.02
2.00) = [Fz (1.50) - .5] + [Fz (2.00) - .5] =
.4332 + .4772 = .9104
d. Probability is .15 that the percentage of
successes is less than what percent? Z = -1.04.
X .20
1.04 =
P = 17.92%
.02
e. Probability is .11 the percentage of successes
X .20
is greater than? Z = 1.23. 1.23 =
. P
.02
= 22.46%
a. E[X] = = 900(.2) = 180, = (900)(.2)(.8) = 12
200 180
P(Z >
) = P(Z > 1.67) = 1 FZ(1.67) = .0475
12
175 180
b. P(Z <
) = P(Z < -.42) = 1 - FZ(.42) = .3372
12
a. E[X] = = 400(.1) = 40, = (400)(.1)(.9) = 6
35 40
P(Z >
) = P(Z > -.83) = FZ(.83) = .7967
6
40 40
50 40
<Z<
) = P(0 < Z < 1.67) = Fz (1.67) FZ(0) =
b. P(
6
6
.9525 - .5 = .4525

Chapter 6: Continuous Random Variables and Probability Distributions

34 40
48 40
<Z<
) = P(-1 < Z < 1.33) = Fz (1.33) [1 FZ(1)]
6
6
= .9082 - .1587 = .7495
d. 39 - 41
c. P(

6.46

E[X] = (100)(.6) = 60, =


P(Z <

6.47

6.48

6.49

6.50

(100)(.6)(.4) = 4.899

50 60
) = P(Z < -2.04) = 1 FZ(2.04) = 1- .9793 = .0207
4.899

a. E[X] = (450)(.25) = 112.5, = (450)(.25)(.75) = 9.1856


100 112.5
P(Z <
) = P(Z < -1.36) = 1 - FZ(1.36) = 1 - .9131 = .0869
9.1856
120 112.5
150 112.5
b. P(
<Z<
) = P(.82 < Z < 4.08) = Fz(4.08) 9.1856
9.1856
Fz(.82) = 1.000 - .7939 = .2061
38 35
) = P(Z > .75) = 1 - FZ(.75) = 1 - .7734 = .2266
4
E[X] = 100(.2266) = 22.66, = (100)(.2266)(.7734) = 4.1863
25 22.66
P(Z >
) = P(Z > .56) = 1 - FZ(.56) = 1 - .7123 = .2877
4.1863
P(Z >

10 12.2
) = P(Z < -.79) = 1 - FZ(.79) = 1 - .7852 = .2148
2.8
E[X] = 400(.2148) = 85.92, = (400)(.2148)(.7852) = 8.2137
100 85.92
P(Z >
) = P(Z > 1.71) = 1 - FZ(1.71) = 1 - .9564 = .0436
8.2137
P(Z

= 1.0, what is the probability that an arrival occurs in the first t=2 time
units?
Cumulative Distribution Function
Exponential with mean = 1
x P( X <= x )
0
0.000000
1
0.632121
2
0.864665
3
0.950213
4
0.981684
5
0.993262

P(T < 2) = .864665

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Statistics for Business & Economics, 6 edition

6.51 = 8.0, what is the probability that an arrival occurs in the first t=7 time
units?
Cumulative Distribution Function
Exponential with mean = 8
x P( X <= x )
0
0.000000
1
0.117503
2
0.221199
3
0.312711
4
0.393469
5
0.464739
6
0.527633
7
0.583138
8
0.632121

P(T < 7) = .583138


6.52

= 5.0, what is the probability that an arrival occurs after t=7 time units?

Cumulative Distribution Function


Exponential with mean = 5
x P( X <= x )
0
0.000000
1
0.181269
2
0.329680
3
0.451188
4
0.550671
5
0.632121
6
0.698806
7
0.753403
8
0.798103

P(T>7) = 1-[P(T 8)] = 1 - .7981 = .2019


6.53

= 6.0, what is the probability that an arrival occurs after t=5 time units?

Cumulative Distribution Function


Exponential with mean = 6
x P( X <= x )
0
0.000000
1
0.153518
2
0.283469
3
0.393469
4
0.486583
5
0.565402
6
0.632121

P(T>5) = 1-[P(T6)] = 1 - .6321 = .3679


6.54

= 3.0, what is the probability that an arrival occurs after t=2 time units?

Cumulative Distribution Function


Exponential with mean = 3
x P( X <= x )
0
0.000000
1
0.283469
2
0.486583
3
0.632121

P(T<2) = .4866
6.55 a. P(X < 20) = 1 - e (20 /10) = .8647
b. P(X > 5) = 1 [1 - e (5/10) ] = e (5/10) = .6065
c. P(10 < X < 15) = (1- e (15 /10) - (1 - e (10 /10) ) = e 1 - e 1.5 = .1447

Chapter 6: Continuous Random Variables and Probability Distributions

6.56 P(X > 18) = e (18 /15) = .3012


6.57 P(X > 2) = e (2)(.8) = .2019
6.58 a. P(X > 3) = 1 [1 - e (3/ ) ] = e 3 since = 1 /
b. P(X > 6) = 1 [1 - e (6 / ) ] = e (6 / ) = e6
c. P(X>6|X>3) = P(X > 6)/P(X > 3) = e 6 / e 3 ] = e 3
The probability of an occurrence within a specified time in the future
is not related to how much time has passed since the most recent
occurrence.
6.59 Find the mean and variance of the random variable: W = 5X + 4Y with
correlation = .5
W = a x + b y = 5(100) + 4(200) = 1300

2W = a 2 2 X + b 2 2Y + 2abCorr ( X , Y ) X Y
= 52(100) + 42(400) + 2(5)(4)(.5)(10)(20) = 12,900
6.60 Find the mean and variance of the random variable: W = 5X + 4Y with
correlation = -.5
W = a x + b y = 5(100) + 4(200) = 1300

2W = a 2 2 X + b 2 2Y + 2abCorr ( X , Y ) X Y
= 52(100) + 42(400) + 2(5)(4)(-.5)(10)(20) = 4,900
6.61 Find the mean and variance of the random variable: W = 5X 4Y with
correlation = .5.
W = a x b y = 5(100) 4(200) = -300

2W = a 2 2 X + b 2 2Y 2abCorr ( X , Y ) X Y
= 52(100) + 42(400) 2(5)(4)(.5)(10)(20) = 4900
6.62 Find the mean and variance of the random variable: W = 5X 4Y with
correlation = .5.
W = a x b y = 5(500) 4(200) = 1700

2W = a 2 2 X + b 2 2Y 2abCorr ( X , Y ) X Y
= 52(100) + 42(400) 2(5)(4)(.5)(10)(20) = 4900

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Statistics for Business & Economics, 6 edition

6.63 Find the mean and variance of the random variable: W = 5X 4Y with
correlation of -.5.
W = a x b y = 5(100) 4(200) = -300

2W = a 2 2 X + b 2 2Y 2abCorr ( X , Y ) X Y
= 52(500) + 42(400) 2(5)(4)(-.5)(22.3607)(20) = 27,844.28
6.64

Z = 100,000(.1) + 100,000(.18). x = 10,000 + 18,000 = 28,000


Z = 0. Note that the first
investment yields a certain profit
of 10% which is a zero standard
deviation. x = 100,000(.06) =
6,000

6.65 Assume that costs are independent across years


Z = 5 x = 5(200) = 1,000
Z =

6.66

5 x =

5(3, 600) = 134.16

Z = 1 + 2 + 3 = 50,000 + 72,000 + 40,000 = 162,000


2

Z = 1 + 2 + 3 =
6.67

(10, 000) 2 + (12, 000) 2 + (9, 000) 2 = 18,027.76

Z = 1 + 2 + 3 = 20,000 + 25,000 + 15,000 = 60,000


2

Z = 1 + 2 + 3 =

(2, 000) 2 + (5, 000) 2 + (4, 000) 2 = 6,708.2

6.68 The calculation of the mean is correct, but the standard deviations of two
random variables cannot be summed. To get the correct standard
deviation, add the variances together and then take the square root. The
standard deviation: = 5(16) 2 = 35.7771
6.69

Z = (16 x ) / 16 = x = 28
2

Z = 16 x / 16 =

(2.4) 2 / 16 = 2.4 / 4 = .6

6.70 a. Compute the mean and variance of the portfolio with correlation of +.5
W = a x + b y = 50(25) + 40(40) = 2850

2W = a 2 2 X + b 2 2Y + 2abCorr ( X , Y ) X Y
= 502(121) + 402(225) + 2(50)(40)(.5)(11)(15) = 992,500
b. Recompute with correlation of -.5
W = a x + b y = 50(25) + 40(40) = 2850

2W = a 2 2 X + b 2 2Y + 2abCorr ( X , Y ) X Y
= 502(121) + 402(225) + 2(50)(40)(-.5)(11)(15) = 332,500

Chapter 6: Continuous Random Variables and Probability Distributions

6.71

a. Find the probability that total revenue is greater than total cost
W = aX bY = 10X [7Y+25)]
W = a x b y = 10(100) [7(100) + 250] = 50

2W = a 2 2 X + b 2 2Y 2abCorr ( X , Y ) X Y
= 102(64) + 72(625) 2(10)(7)(.6)(8)(25) = 20,225 W = 20, 225
= 142.2146
P(Z >

0 50
) = P(Z > -.35) = FZ(.35) = .6368
142.2146

b. 95% acceptance interval = 50 1.96 (142.2146) = 50 278.7406 = 228.7406 to 328.7406


6.72 a. W = aX bY = 10X 10Y
W = a x b y = 10(100) 10(90) = 100

2W = a 2 2 X + b 2 2Y 2abCorr ( X , Y ) X Y
=102(100) + 102(400) 2(10)(10)(-.4)(10)(20) =66,000 W = 66, 000
=256.90465
b. P(Z <

0 100
) = P(Z < -.39) = 1 FZ(.39) = 1 .6517 = .3483
256.90465

6.73
W = aX bY = 10X 4Y
W = a x b y = 10(400) 4(400) = 2400

2W = a 2 2 X + b 2 2Y 2abCorr ( X , Y ) X Y
=102(900) + 42(1600) 2(10)(4)(.5)(30)(40) = 67,600 W = 67, 600 =260
P(Z >

2000 2400
) = P(Z > -1.54) = FZ(1.54) = .9382
260

6.74 a. W = aX bY = 1X 1Y
W = a x b y = 1(100) 1(105) = -5

2W = a 2 2 X + b 2 2Y 2abCorr ( X , Y ) X Y
=12(900) + 12(625) 2(1)(1)(.7)(30)(25) = 475 W = 475 =21.79449
b. P(Z >
6.75

0 (5)
) = P(Z > .23) = 1 FZ(.23) = 1 .5910 = .4090
21.79449

a. P(X < 10) = (10/12) (8/12) = 1/6


b. P(X > 12) = (20/12) (12/12) = 8/12 = 2/3

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Statistics for Business & Economics, 6 edition

c. E[] = (20/12 12/12) = 2(2/3) = 1.333


d. To jointly maximize the probability of getting the contract and the
profit from that contract, maximize the following function: max E[]
= (B 10)(20/12 B/12). Where B is the value of the bid. To
determine the value for B that maximizes the expected profit, an
iterative approach can be used. The value of B is 15.
6.76 a.

Probability Density Function: f(x)


f(x)

0.033333

0.000000
30

35

40

45

50

55

60

65

70

b. Cumulative density function


Cumulative density function: F(x)
1.0

F(x)

0.8

0.6

0.4

0.2

0.0
35

40

45

50

55
X

c. P(40 < X < 50) = (50/30) (40/30) = 10/30


65 + 35
d. E[X] =
= 50
2

60

65

Chapter 6: Continuous Random Variables and Probability Distributions

6.77

a. The probability density function f(x):

Probability density function: f(x)


1.50
f(x)

1.00

0.5

0.00
0

.5

1.5

b. Fx(x) 0 for all x. The area under fx(x) = 2[(base x height)] = 1


.52
.52
c. P(.5 < X < 1.5 ) = (.5 ) + (.5 ) = .375 + .375 = .75
2
2
6.78

a. Y = 2000(1.1) + 1000(1+ x ) = 2,200 + 1,160 = 3,360


b. Y = |1000| x = 1000(.08) = 80

6.79

a. R = 1.45 x = 1.45(530) = 768.5


b. R = |1.45| x = 1.45(69) = 100.05
c. = R C = .5X 100, E[] = .5 x -100 = 165, = |.5| x = .5(69) =
34.5

6.80 Given that the variance of both predicted earnings and forecast error are
both positive and given that the variance of actual earnings is equal to the
sum of the variances of predicted earnings and forecast error, then the
Variance of predicted earnings must be less than the variance of actual
earnings
6.81 Cov[(X1 + X2), (X1 X2)] = E[(X1 + X2)(X1 X2)] E[X1 + X2] E[X1 X2]
= E[X12 - X22] E[(X1) + E(X2)][E(X1) E(X2)] =
E(X12) E(X22) - [(E(X1))2 (E(X2)2] = Var (X1) Var (X2)
Which is 0 if and only if Var (X1) = Var (X2)

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3 2.6
) = P(Z > .8) = 1 FZ(.8) = .2119
.5
2.25 2.6
2.75 2.6
<Z<
) = P(-.7 < Z < .3) = Fz (.3) [1-FZ(.3)]
P(
.5
.5
= .3759
Xi 2.6
, Xi = 3.24
P(Z > 1.28) = .1, 1.28 =
.5
P(Xi > 3) = .2119 (from part a)
E[X] = 400(.2119) = 84.76, x = (400)(.2119)(.7881) = 8.173
80 84.76
P(Z >
) = P(Z > -.58) = FZ(.58) = .7190
8.173
P(X 1) = 1 P(X = 0) = 1 (.7881)2 = .3789

6.82 a. P(Z >


b.

c.
d.

e.

6.83

6.84

65 60
) = P(Z > .5) = 1 FZ(.5) = .3085
10
50 60
70 60
b. P(
<Z<
) = P(-1 < Z < 1) = 2 Fz (1) 1 = .6826
10
10
Xi 60
c. P(Z > 1.96) = .025, 1.96 =
, Xi = 79.6
10
d. P(Z > .675) = .025, .675 = The shortest range will be the interval
Xi 60
centered on the mean. Since the P(Z > .675) = .025, .675 =
.
10
Xi 60
Xi = 66.75. The lower value of the interval will be .675 =
10
which is Xi = 53.25. Therefore, the shortest range will be 66.75
53.25 = 13.5. This is by definition the InterQuartile Range (IQR).
d. P(X > 65) = .3085 (from part a)
Use the binomial formula: P(X = 2) = C24 (.3085) 2 (.6915) 2 = 0.2731
a. P(Z >

85 100
) = P(Z < -.5) = .3085
30
70 100
130 100
b. P(
<Z<
) = P(-1 < Z < 1) = 2 Fz (1) 1 = .6826
30
30
Xi 100
c. P(Z > 1.645) = .05, 1.645 =
, Xi = 149.35
30
60 100
d. P(Z >
) = P(Z > -1.33) = FZ(1.33) = .9032
30
P(X 1) = 1 P(X = 0) = 1 (.0918)2 = .9916
a. P(Z <

Chapter 6: Continuous Random Variables and Probability Distributions

e. Use the binomial formula: P(X = 2) = C24 (.9082) 2 (.0918) 2 = 0.0417


f. 90 109
g. 130 - 149

6.85

b.
c.
d.

e.
f.
6.86

15 20
25 20
<Z<
) = P(-1.25 < Z < 1.25) = 2 FZ(1.25) 1 =
4
4
.7888
30 20
) = P(Z > 2.5) =1 - Fz (2.5) = .0062
P(Z >
4
P(X 1) = 1 P(X = 0) = 1 [FZ(2.5)]5 = .0306
Xi 20
, Xi = 22.1 The shortest range will be
P(Z > .525) = .3, .525 =
4
the interval centered on the mean. The lower value of the interval will
Xi 20
be .525 =
which is Xi = 17.9. Therefore, the shortest range
4
is 22.1 17.9 = 4.2.
19 21
21 23

a. P(

P(Z > 1.28) = .1, 1.28 =


P(Z >

6.87

, = 23.4375

140 100
) = P(Z > 1.71) = 1 FZ(1.71) = .0436
23.4375

P(Z > 1.28) = .1, 1.28 =


P(Z <

130 100

25
, = 21.8
2.5

20 21.8
) = P(Z < -.72) = 1 FZ(.72) = .2358
2.5

6.88

E[X] = 1000(.4) = 400, x = (1000)(.4)(.6) = 15.4919


500 400
P(Z <
) = P(Z < 6.45) 1.0000
15.4919

6.89

E[X] = 400(.6) = 240, x = (400)(.6)(.4) = 9.798


200 240
P(Z >
) = P(Z > -4.08) 1.0000
9.798

6.90

P(Z <

50 70
) = P(Z < -2.39) = 1 FZ (2.39) = .0084
70

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Statistics for Business & Economics, 6 edition

6.91

a. P(X = 6) =

e 6 66
= .1606
6!

b. 20 minutes = 1/3 hours, P(X > 1/3) = e

6
3

= .1353

c. 5 minutes = 1/12 hour, P(X < 1/12) = 1 - e 12 = .3935


d. 30 minutes = .5 hour, P(X > .5) = e (.5)(6) = .0498
6.92

a. E[X] = 600(.4) = 240, x = (600)(.4)(.6) = 12


260 240
P(Z >
) = P(Z > 1.67) = 1 FZ(1.67) = .0475
12
Xi 240
b. P(Z > -.254) = .6, -.254 =
, Xi = 236.95 (237 listeners)
12

6.93

a. P(

120 132
150 132
<Z<
) = P(- 1 < Z < 1.5) = FZ (1.5) [1 FZ(1)]
12
12

= .7745
b. P(Z > .44) = .33, .44 =

Xi 132
, Xi = 137.28
12

120 132
) = P(Z < -1) = 1 FZ(1) = .1587
12
d. E[X] = 100(.1587) = 15.87, x = (100)(.1587)(.8413) = 3.654
25 15.87
P(Z >
) = P(Z > 2.5) = 1 FZ(2.5) = .0062
3.654

c. P(Z <

6.94

P(Z>1.28)=.1, 1.28=

3.5 2.4

3+ hours on task: P(Z >


400(.242) = 96.8, x =

, =.8594. Probability that 1 exec spends

3 2.4
) = P(Z > .7) = 1 FZ(.7) = .242. E[X] =
.8594
80 96.8
)=P(Z>(400)(.242)(.758) = 8.566. P(Z >
8.566

1.96) = FZ(1.96)=.975
6.95 Portfolio consists of 10 shares of stock A and 8 shares of stock B.
a. Find the mean and variance of the portfolio value: W = 10X + 8Y with
correlation of .3.
W = a x + b y = 10(10) + 8(12) = 196

2W = a 2 2 X + b 2 2Y + 2abCorr ( X , Y ) X Y
= 102(16) + 82(9) + 2(10)(8)(.3)(4)(3) = 2,752
b. Option 1: Stock 1 with mean of 10, variance of 25, correlation of -.2.
2W = a 2 2 X + b 2 2Y + 2abCorr ( X , Y ) X Y
= 102(25) + 82(9) + 2(10)(8)(-.2)(5)(3) = 2,596

Chapter 6: Continuous Random Variables and Probability Distributions

Option 2: Stock 2 with mean of 10, variance of 9, correlation of .6.


= 102(25) + 82(9) + 2(10)(8)(.6)(5)(3) = 2,340
To reduce the variance of the porfolio, select Option 2
6.96 Portfolio consists of 10 shares of stock A and 8 shares of stock B
a. Find the mean and variance of the portfolio value: W = 10X + 8Y with
correlation of .3.
W = a x + b y = 10(12) + 8(10) = 200

2W = a 2 2 X + b 2 2Y + 2abCorr ( X , Y ) X Y
= 102(14) + 82(12) + 2(10)(8)(.5)(3.74166)(3.4641) = 3,204.919
b. Option 1: Stock 1 with mean of 12, variance of 25, correlation of -.2.
2W = a 2 2 X + b 2 2Y + 2abCorr ( X , Y ) X Y
= 122(25) + 82(12) + 2(10)(8)(-.2)(5)(3.4641) = 3,813.744
Option 2: Stock 2 with mean of 10, variance of 9, correlation of .6.
= 102(9) + 82(12) + 2(10)(8)(.6)(3)(3.4641) = 2,665.66
To reduce the variance of the porfolio, select Option 2
6.97

W = a x + b y = 1(800000) + 1(60000) = 140000


2W = a 2 2 X + b 2 2Y + 2abCorr ( X , Y ) X Y
= 12(1000000) + 12(810000) + 2(1)(1)(.4)(1000)(900) = 2,530,000
W = 2,530, 000 = 1590.597372
Probability that the weight is between 138,000 and 141,000:
138, 000 140, 000
141, 000 140, 000
= -1.26 fz = .3962,
= .63 fz = .2357
1590.597372
1590.597372
.3962 + .2357 = .6319
6.98 a. W = a x + b y = 1(40) + 1(35) = 75

2W = a 2 2 X + b 2 2Y + 2abCorr ( X , Y ) X Y
= 12(100) + 12(144) + 2(1)(1)(.6)(10)(12) = 388
W = 388 = 19.69772
Probability that all seats are filled:
100 75
= 1.27 Fz = .8980. 1 - .8980 = .1020
19.69772
b. Probability that between 75 and 90 seats will be filled:
90 75
= .76 .5 Fz(.76) = .2764
19.69772

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