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25 views23 pagesPractice Final exam for quant methods in business

Feb 29, 2016

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Practice Final exam for quant methods in business

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Practice Final exam for quant methods in business

© All Rights Reserved

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Angelo Mele

Problem 1

The joint probability distribution of X and Y is partially shown in the table below.

0

0.11

X 1

0.09

Y

1

2

0.24

0.15

0.17

0.27

0.3

P (Y = 1|X = 0) = 0.5

Answer The table below contains the solution

0

0.11

Y

1

0.12

2

0.01

0.24

X 1

0.09

0.15

0.02

0.26

0.06

0.26

0.17

0.44

0.27

0.3

0.5

E(X) = (0)(0.24) + (1)(0.26) + (2)(0.5) = 1.26

3. Compute the variance of X (show your math)

V (X) = (0 1.26)2 (0.24) + (1 1.26)2 (0.26) + (2 1.26)2 (0.5) = 0.6724

4. Compute the expected value of Y (show your math)

E(Y ) = (0)(0.26) + (1)(0.44) + (2)(0.3) = 1.04

5. Compute the Variance of Y (show your math)

V (Y ) = (0 1.04)2 (0.26) + (1 1.04)2 (0.44) + (2 1.04)2 (0.3) = 0.5584

6. Compute the covariance of X and Y (show your math)

COV (X, Y )

Problem 2

The joint probability distribution of X and Y is partially shown in the table below.

Y

1

0

0

2

0.2

X 3

0.1

0

0.6

P (Y = 2|X = 2) = 0.5

P (X = 5|Y = 0) = 1

0.1

0

0

Y

1

0.1

2

0.1

0.2

X 3

0.1

0.1

0.6

0.6

0

0.2

0.1

0.2

0.7

E(X) = (2)(0.2) + (3)(0.1) + (5)(0.7) = 4.2

3. Compute the variance of X (show your math)

V (X) = (2 4.2)2 (0.2) + (3 4.2)2 (0.1) + (5 4.2)2 (0.7) = 1.56

4. Compute the expected value of Y (show your math)

E(Y ) = (0)(0.6) + (1)(0.2) + (2)(0.2) = 0.6

5. Compute the Variance of Y (show your math)

V (Y ) = (0 0.6)2 (0.6) + (1 0.6)2 (0.2) + (2 0.6)2 (0.2) = 0.64

6. Compute the covariance of X and Y (show your math)

COV (X, Y )

Problem 3

The joint probability distribution of X and Y is partially shown in the table below.

Y

4

1

0.1

6

0.5

X 3

0.1

0.4

In addition you know the conditional probability

P (Y = 6|X = 2) = 0.2

P (X = 5|Y = 1) = 0.25

1

0.1

Y

4

0.3

6

0.1

0.5

X 3

0.2

0.1

0.3

0.1

0.4

0

0.3

0.1

0.3

0.2

E(X) = (2)(0.5) + (3)(0.3) + (5)(0.2) = 2.9

3. Compute the variance of X (show your math)

V (X) = (2 2.9)2 (0.5) + (3 2.9)2 (0.3) + (5 2.9)2 (0.2) = 1.29

E(Y ) = (1)(0.4) + (4)(0.3) + (6)(0.3) = 3.4

5. Compute the Variance of Y (show your math)

V (Y ) = (1 3.4)2 (0.4) + (4 3.4)2 (0.3) + (6 3.4)2 (0.3) = 4.44

6. Compute the covariance of X and Y (show your math)

COV (X, Y )

Problem 4

Use the following table to solve the question

P (Z < 2.576) = 0.995

Student-t distribution

P (Z < 1.645) = 0.95

P (Z < 1.96) = 0.975

P (Z < 0.842) = 0.8

In a survey of 200 individuals we calculate a sample proportion of p = 0.42. Test the hypothesis

H0 : p = 0.4

H1 : p > 0.4

at significance level = 0.05

1. Compute the bound(s) of the rejection region and the value of the test statistic for this test

Answer. The test statistics for the sample proportion is

p p0

q

N (0, 1)

p0 (1p0 )

n

which is approximately normally distributed, according to the central limit theorem. This is a one-tail test so

we are looking for a rejection region bound that leaves 0.05 on the right. Using the table at the end of the

booklet we find P (Z < 1.645) = 0.95 which implies P (Z > 1.645) = 0.05. The rejection region is then

0

REJECT if p ppp

> 1.645

(1p )

0

2. Can you reject the null?

AnswerThe value of the test statistics is

p p0

q

p0 (1p0 )

n

0.42 0.4

= q

= 0.577

0.4(0.6)

200

5

Answer. With a significance level of 0.01, the rejection region bound must leave 0.01 probability on the right,

so our bound is 2.326 (because P (Z < 2.326) = 0.99 or P (Z > 2.326) = 0.01). The rejection region is:

0

REJECT if p ppp

> 2.326

(1p )

0

Since the test statistics value is 0.577 < 2.326, we DO NOT REJECT the null at 0.01 significance level.

Problem 5

Consider the 3 independent random variables

X Bernoulli(0.2)

Y Bernoulli(0.3)

S Bernoulli(0.5)

E(W ) =

Answer.

E(W ) = E(X + S) = E(X) + E(S) = [0.2(1) + 0.8(0)] + [0.5(1) + 0.5(0)] = 0.2 + 0.5 = 0.7

V (H) =

Answer. The variables are independent, therefore we dont need to consider the covariance terms.

V (H) = V (X + 5Y 3S) = V (X) + 52 V (Y ) + 32 V (S)

Notice that the variance of a Bernoulli variable with parameter p is given by p(1 p), therefore we get

V (H) = V (X) + 52 V (Y ) + 32 V (S) = 0.2(0.8) + 25(0.3)(0.7) + 9(0.5)(0.5) = 7.66

Answer. NO, they both have Bernoulli distribution, but with different probability of success (0.2 for X and

0.3 for Y ).

Problem 6

A playboy goes to a party in New York, where he meets 5 fabulous ladies. He asks each of them out, independently

(i.e. making sure that they do not know he invited the others too). From his past experience, the playboy knows

that his probability of success with a lady is p = 0.4.

1. What is the probability that all ladies reject the invitation? Explain your answer

Answer. The probability of rejection in one trial is 1 p = 0.6. So the probability of n = 5 independent

failures is given by 0.65 = 0.07776. In alternative, you can also use the binomial formula to get the same answer

P (X = 0) =

5!

0.40 0.65 = 0.07776

5!0!

2. What is the probability that at least 1 lady accepts the invitation? Explain your answer

Answer. Using the binomial distribution formula

P (X 1) = 1 P (X = 0) = 1

5!

0.40 0.65 = 1 0.07776 = 0.92224

5!0!

3. What is the probability that at most 4 lady accepts the invitation? Explain your answer

Answer. Using the binomial distribution formula

P (X 4) = 1 P (X = 5) = 1

5!

0.45 0.60 = 1 0.01024 = 0.98976

0!5!

4. What is the probability that at least 1 and at most 3 ladies accept the invitation? Explain your answer

Answer. Using the binomial distribution formula

P (1 X 3)

= P (X = 1) + P (X = 2) + P (X = 3)

5!

5!

5!

0.41 0.64 +

0.42 0.63 +

0.43 0.62

=

4!1!

3!2!

2!3!

= 0.2592 + 0.3456 + 0.2304

=

0.8352

Problem 7

Let X be the number of Emergency Room visits in a year. The probability distribution of X is given by the following

table

x

P (X = x)

0

0.45

1

0.3

2

0.15

3

0.05

4

0.03

5

0.02

1. What is the probability that a person would visit the emergency room more than twice in a year?

Answer. We are looking for the probability P (X > 2) which is equivalent to P (X > 2) = 0.1.

2. Suppose you randomly select n = 10 individuals: what is the probability that at least 1 of them visits the

emergency room more than twice a year?

Answer. We define the variable Y to be the event that a person visits the emergency room more than twice

a year. To answer the question we use the binomial distribution, with n = 10, y = 1 and p = 0.1.

P (Y 1) = 1 P (Y = 0) = 1

10!

0.10 (0.9)10 = 1 0.3486784401 = 0.6513215599

0!10!

Problem 8

To answer this question you cannot use the computer. You need to come up with the answers using only the data

provided. Here are several probabilities for the standard normal distribution.

P (Z < 0.13)

0.5517

P (Z < 1.22)

0.8888

P (Z > 1.35)

0.9115

Using only these probabilities and the properties of the distribution, compute the following probabilities. Explain

your answers and which properties of the distribution you used.

1. P (Z < 1.35)

Answer. Here we use the symmetry of the standard normal distribution. Because of the symmetry we have

P (Z < a) = P (Z > a), so P (Z < 1.35) = P (Z > 1.35) = 0.9115.

2. P (Z > 1.22)

Answer. Here we use the fact that the area below the pdf must sum to 1. So P (Z > a) = 1 P (Z < a). In

our case, P (Z > 1.22) = 1 P (Z < 1.22) = 1 0.8888 = 0.1112

3. P (Z > 0.13)

Answer. Here we use the fact that the area below the pdf must sum to 1. So P (Z > a) = 1 P (Z < a). In

our case, P (Z > 0.13) = 1 P (Z < 0.13) = 1 0.5517 = 0.4483.

Answer. To compute this probability we use the properties of the cdf, i.e. P (a < Z < b) = P (Z <

b) P (Z < a). From the result in (A) we know P (Z < 1.35) = 0.9115 and from the probabilities above we

have P (Z < 1.22) = 0.8888, so the probability is

P (1.22 < Z < 1.35) = P (Z < 1.35) P (Z < 1.22) = 0.9115 0.8888 = 0.0226999999999999

Answer. Using the cdf

P (0.13 < Z < 1.22) = P (Z < 1.22) P (Z < 0.13) = 0.8888 0.5517 = 0.3371

6. For the variable X = 9 + 4Z, compute the probability P (9.52 < X < 14.4)

Answer. The probability is

9.52 (9)

X (9)

14.4 (9)

<

<

4

4

4

= P (0.13 < Z < 1.35)

7. For the variable X = 12 + 7Z, compute the probability P (11.09 < X < 2.55)

Answer. The probability is

X (12)

2.55 (12)

11.09 (12)

<

<

P (11.09 < X < 2.55) = P

7

7

7

= P (0.13 < Z < 1.35)

Problem 9

Use the following table to solve the question

P (t42

P (t43

P (t44

Student-t distribution

> 1.302) = 0.1

P (t42 > 1.682) = 0.05

> 1.302) = 0.1

P (t43 > 1.681) = 0.05

> 1.301) = 0.1

P (t44 > 1.68) = 0.05

P (t43 > 2.017) = 0.025

P (t44 > 2.015) = 0.025

The height (in centimeters) of high schoolers, indicated by variable X, is normally distributed. We are interested

in estimating and make inference about the population mean . We collect an i.i.d. sample of n = 43 observations,

with sample mean x

= 156 and sample variance s2 = 324.

1. Construct a 80% confidence interval for

Answer. The confidence interval is such that

P

t42,0.1 <

x

0

s

n

!

< t42,0.1

= 0.8

or

s

s

P x

t42,0.1 < < x

+ t42,0.1

= 0.8

n

n

From the table, we find P (t42 > t42,0.1 ) = 1.302, so the confidence interval is

s

18

x

t42,0.1 = 156 1.302 = [152.426, 159.574]

n

43

9

Answer. The confidence interval is such that

t42,0.025 <

x

0

s

n

!

< t42,0.025

= 0.95

or

s

s

P x

t42,0.025

<<x

+ t42,0.025

= 0.95

n

n

From the table, we find P (t42 > t42,0.025 ) = 2.018, so the confidence interval is

s

18

x

t42,0.025 = 156 2.018 = [150.461, 161.539]

n

43

3. Construct a 90% confidence interval for

Answer. The confidence interval is such that

P

t42,0.05 <

x

0

s

n

!

< t42,0.05

= 0.9

or

s

s

<<x

+ t42,0.05

= 0.9

P x

t42,0.05

n

n

From the table, we find P (t42 > t42,0.05 ) = 1.682, so the confidence interval is

18

s

x

t42,0.05 = 156 1.682 = [151.383, 160.617]

n

43

Problem 10

Please compute the first derivative of the following functions:

1. f (x) = x6

Answer. f 0 (x) = 6x5

2. f (x) = x3

Answer. f 0 (x) = 3x2

3. f (x) = x11

Answer. f 0 (x) = 11x10

10

Answer.

f 0 (x)

Answer.

f 0 (x)

Answer.

f 0 (x)

Answer.

f 0 (x)

=

=

1

6 4x61 + 4 2x41 + 9 6x91

4x6 + 2x4 + 6x9

24x5 + 8x3 + 54x8

4x6 + 2x4 + 6x9

Answer.

f 0 (x)

=

=

9. f (x) =

1

12 13x121 + 3 4x31 + 7 5x71

3

7

+ 4x + 5x

156x11 + 12x2 + 35x6

13x12 + 4x3 + 5x7

13x12

13x15 +13x18 +15x16

Answer.

[(10)14x101 +(7)16x71 +(12)10x121 ][13x15 +13x18 +15x16 ][14x10 +16x7 +10x12 ][(15)13x151 +(18)13x181 +(16)15x161 ]

f 0 (x) =

[13x15 +13x18 +15x16 ]2

=

[140x9 +112x6 +120x11 ][13x15 +13x18 +15x16 ][14x10 +16x7 +10x12 ][195x14 +234x17 +(240x15 ]

[13x15 +13x18 +15x16 ]2

10. f (x) =

10x6 +5x9 +17x17

Answer.

[(11)12x111 +(7)17x71 +(11)7x111 ][10x6 +5x9 +17x17 ][12x11 +17x7 +7x11 ][(6)10x61 +(9)5x91 +(17)17x171 ]

f 0 (x) =

[10x6 +5x9 +17x17 ]2

=

[132x10 +119x6 +77x10 ][10x6 +5x9 +17x17 ][12x11 +17x7 +7x11 ][60x5 +45x8 +(289x16 ]

[10x6 +5x9 +17x17 ]2

11. f (x) =

15x16 +10x13 +10x17

Answer.

[(7)12x71 +(10)4x101 +(7)15x71 ][15x16 +10x13 +10x17 ][12x7 +4x10 +15x7 ][(16)15x161 +(13)10x131 +(17)10x171 ]

f 0 (x) =

[15x16 +10x13 +10x17 ]2

=

[84x6 +40x9 +105x6 ][15x16 +10x13 +10x17 ][12x7 +4x10 +15x7 ][240x15 +130x12 +(170x16 ]

[15x16 +10x13 +10x17 ]2

11

Answer. The derivatives are:

f (x, y)

x

f (x, y)

y

(5)4x51 y 13

20x4 y 13

(13)4x5 y 131

52x5 y 12

Answer. The derivatives are:

f (x, y)

x

f (x, y)

y

(13)5x131 y 5

65x12 y 5

(5)5x13 y 51

25x13 y 4

Answer. The derivatives are:

f (x, y)

x

f (x, y)

y

(5)4x51 y 4

20x4 y 4

(4)4x5 y 41

16x5 y 3

15. Compute the partial derivatives of the function f (x) = 5x10 y 10 3x14 y 6 + 7x

Answer. The derivatives are:

f (x, y)

x

f (x, y)

y

(10)5x101 y 10 (14)3x141 y 6 + 7

50x9 y 10 42x13 y 6 + 7

50x10 y 9 18x14 y 5

16. Compute the partial derivatives of the function f (x) = 3x4 y 4 4x6 y 11 + 6x

Answer. The derivatives are:

f (x, y)

x

f (x, y)

y

(4)3x41 y 4 (6)4x61 y 11 + 6

12x3 y 4 24x5 y 11 + 6

12x4 y 3 44x6 y 10

17. Compute the partial derivatives of the function f (x) = 4x4 y 9 3x6 y 11 + 6x

12

f (x, y)

x

f (x, y)

y

(4)4x41 y 9 (6)3x61 y 11 + 6

16x3 y 9 18x5 y 11 + 6

36x4 y 8 33x6 y 10

Problem 11

The sample for variable x is

65654

and the sample for variable y is

65362

Please compute:

1. The mean, median, and mode of the sample for x and y

2. The variance and standard deviation for x and y

3. The covariance and correlation of the two variables

Answers.

When there are few observations in the sample, it is convenient to create a table like this

1

2

3

4

5

xi

6.000

5.000

6.000

5.000

4.000

yi

6.000

5.000

3.000

6.000

2.000

(xi x

)

0.800

-0.200

0.800

-0.200

-1.200

(xi x

)2

0.640

0.040

0.640

0.040

1.440

(yi y)

1.600

0.600

-1.400

1.600

-2.400

(yi y)

2.560

0.360

1.960

2.560

5.760

(xi x

)(yi y)

1.280

-0.120

-1.120

-0.320

2.880

Using the table we can compute all the quantities we need for the answers.

Pn

1. The mean of the sample x is computed using the formula x

= n1 i=1 xi , i.e. we sum the entries of column xi

from the table and divide by the number of observations n = 5.

x

=

26

= 5.2

5

To compute the median we sort the sample from the lowest to the highest value and find the value that leaves

50% of the observations on the left side and 50% of the observation on the right side.

45566

13

xm = 5

For the mode we just look at the sample and find the most frequent value. In this sample the mode is therefore

x0 = 5.5

For variable y we do the same and obtain

y =

4.4

ym

y0

2. The variance s2x and standard deviation sx are computed according to the formulas

n

1 X

2

(xi x

)

n 1 i=1

p

=

s2x

s2x

sx

We can compute the

i.e.

Pn

i=1

(xi x

) by summing the column (xi x

) of the table, then dividing by n 1 = 4,

sx

2.8

= 0.7 = 0.7

4

=

0.7 = 0.837

s2y

sy

s2x

13.2

= 3.3 = 3.3

4

3.3 = 1.817

3. For the covariance we use the last column of the table. The formula is given by

n

sxy =

1 X

(xi x

)(yi y)

n 1 i=1

Therefore we obtain

Pn

sxy

=

=

x

)(yi y)

n1

i=1 (xi

2.6

= 0.65

4

rxy

=

=

sxy

sx sy

0.65

= 0.427

0.837 1.817

14

Problem 11

Suppose we have two random variables X and Y and we know that

X

N (20, 36)

N (30, 25)

XY

COV (X, Y ) = 0

Answer. NO, they are not necessarily independent.

The statement is: IF they are independent, THEN the covariance is zero.

The opposite is not true (remember the third question in the second homework)

2. Are X and Y identically distributed? Explain your answer

Answer. NO, they have different mean and variance.

3. Compute the probabilities below. Explain your answer.

Answer.

P (X > 20) = 0.5. The normal distribution is symmetric around the mean.

P (Y = 30) = 0. With continuous distribution we can only compute probabilities for intervals. The probability

that the random variable takes on a specific value is zero.

4. Suppose we draw an i.i.d. sample of n = 30 observations from X. Compute the expected value and variance

Explain how you got the result.

of the sample mean X.

Answer

2

N (X , X ). As a conseThe sample mean for normally distributed i.i.d. data has sampling distribution X

n

quence:

= X = 20

E(X)

2

= X = 36 = 1.2

V (X)

n

30

Problem 12

The sample for variable x is

23776

and the sample for variable y is

55524

Please compute:

1. The mean, median, and mode of the sample for x and y

2. The variance and standard deviation for x and y

3. The covariance and correlation of the two variables

15

1

2

3

4

5

xi

2.000

3.000

7.000

7.000

6.000

yi

5.000

5.000

5.000

2.000

4.000

(xi x

)2

9.000

4.000

4.000

4.000

1.000

(xi x

)

-3.000

-2.000

2.000

2.000

1.000

(yi y)

0.800

0.800

0.800

-2.200

-0.200

(yi y)

0.640

0.640

0.640

4.840

0.040

(xi x

)(yi y)

-2.400

-1.600

1.600

-4.400

-0.200

Answers.

When there are few observations in the sample, it is convenient to create a table like this

Using the table we can compute all the quantities we need for the answers.

Pn

1. The mean of the sample x is computed using the formula x

= n1 i=1 xi , i.e. we sum the entries of column xi

from the table and divide by the number of observations n = 5.

x

=

25

=5

5

To compute the median we sort the sample from the lowest to the highest value and find the value that leaves

50% of the observations on the left side and 50% of the observation on the right side.

23677

So the median of our sample is

xm = 6

For the mode we just look at the sample and find the most frequent value. In this sample the mode is therefore

x0 = 7

For variable y we do the same and obtain

y =

ym =

y0

4.2

5

2. The variance s2x and standard deviation sx are computed according to the formulas

n

1 X

2

(xi x

)

n 1 i=1

p

=

s2x

s2x

sx

We can compute the

i.e.

Pn

i=1

(xi x

) by summing the column (xi x

) of the table, then dividing by n 1 = 4,

s2x

sx

s2y

22

= 5.5 = 5.5

4

5.5 = 2.345

sy

6.8

= 1.7 = 1.7

4

1.7 = 1.304

=

16

3. For the covariance we use the last column of the table. The formula is given by

n

sxy

1 X

=

(xi x

)(yi y)

n 1 i=1

Therefore we obtain

Pn

sxy

=

=

x

)(yi y)

n1

i=1 (xi

7

= 1.75

4

rxy

=

=

sxy

sx sy

1.75

= 0.572

2.345 1.304

Problem 13

The joint probability distribution of X and Y is partially shown in the table below.

0

0.14

X 1

0.12

Y

1

2

0.25

0.1

0.08

P (Y = 1|X = 0) = 0

17

0.28

0.39

0

0.14

Y

1

0

2

0.11

0.25

X 1

0.12

0.1

0.22

0.17

0.43

0.08

0.18

0.28

0.39

0.53

E(X) = (0)(0.25) + (1)(0.22) + (2)(0.53) = 1.28

3. Compute the variance of X (show your math)

V (X) = (0 1.28)2 (0.25) + (1 1.28)2 (0.22) + (2 1.28)2 (0.53) = 0.7016

4. Compute the expected value of Y (show your math)

E(Y ) = (0)(0.43) + (1)(0.18) + (2)(0.39) = 0.96

5. Compute the Variance of Y (show your math)

V (Y ) = (0 0.96)2 (0.43) + (1 0.96)2 (0.18) + (2 0.96)2 (0.39) = 0.8184

6. Compute the covariance of X and Y (show your math)

COV (X, Y )

Problem 14

The table below contains the joint distribution of two indepedent variables: X (rows) and Y (columns).

X=12

X=24

X=51

Y=24

0.01

0.08

0.01

Y=34

0.03

0.24

0.03

Y=48

0.01

0.08

0.01

18

Y=56

0.04

0.32

0.04

Y=74

0.01

0.08

0.01

Answer. There is no need to compute the covariance. The variables are indepedent, therefore the covariance

is zero: XY = COV (X, Y ) = 0 and XY = 0.

P (X = 24|Y = 48) =

=48)

Asnwer. There is no need to compute this using the usual formula P (X = 24|Y = 48) = P (X=24,Y

.

P (Y =48)

The variables are independent, therefore the conditionals are equal to the marginals. This means that P (X =

24|Y = 48) = P (X = 24).To obtain the marginal for X we sum the entries of the table by row, and we get

P (X = 24) = 0.8

P (X = 51|Y = 34) =

=34)

.

Asnwer. There is no need to compute this using the usual formula P (X = 51|Y = 34) = P (X=51,Y

P (Y =34)

The variables are independent, therefore the conditionals are equal to the marginals. This means that P (X =

51|Y = 34) = P (X = 51).To obtain the marginal for X we sum the entries of the table by row, and we get

P (X = 51) = 0.1

P (Y = 34|X = 51) =

.

Asnwer. There is no need to compute this using the usual formula P (Y = 34|X = 51) = P (YP=34,X=51)

(X=51)

The variables are independent, therefore the conditionals are equal to the marginals. This means that P (Y =

34|X = 51) = P (Y = 34).To obtain the marginal for Y we sum the entries of the table by column, and we get

P (Y = 34) = 0.3

Problem 15

The joint probability distribution of X and Y is partially shown in the table below.

0

0.15

Y

1

0.06

2

0.09

X 1

0.15

0.06

0.09

0.5

0.2

0.3

19

Answer. The first 2 entries are simple. We have all the joint probabilities for X = 0 and X = 1. So we get

P (X = 0)

P (X = 1)

= P (X = 0, Y = 0) + P (X = 0, Y = 1) + P (X = 0, Y = 2)

=

0.3

= P (X = 1, Y = 0) + P (X = 1, Y = 1) + P (X = 1, Y = 2)

= 0.15 + 0.06 + 0.09

= 0.3

For the remaining probability we just use the fact that the marginal probabilities have to sum to 1, so we have

P (X = 0) + P (X = 1) + P (X = 2) = 1

and we can back up P (X = 2)

P (X = 2) = 1 P (X = 0) P (X = 1) = 1 0.3 0.3 = 0.4

0

0.15

Y

1

0.06

2

0.09

0.3

X 1

0.15

0.06

0.09

0.3

0.4

0.5

0.2

0.3

Answer. To find the remaining joint probabilities, we use the fact that each column should sum up to the

marginal probability of Y . So for the first column we get that the missing probability P (X = 2, Y = 0) is such

that

p(Y = 0) = 0.5 = 0.15 + 0.06 + P (X = 2, Y = 0)

So P (X = 2, Y = 0) is equal to

P (X = 2, Y = 0) = 0.5 0.15 0.15 = 0.2

P (X = 2, Y = 1) = 0.2 0.06 0.06 = 0.08

20

0

0.15

Y

1

0.06

2

0.09

0.3

X 1

0.15

0.06

0.09

0.3

0.2

0.5

0.08

0.2

0.12

0.3

0.4

E(X) = (0)(0.3) + (1)(0.3) + (2)(0.4) = 1.1

4. Compute the variance of X (show your math)

V (X) = (0 1.1)2 (0.3) + (1 1.1)2 (0.3) + (2 1.1)2 (0.4) = 0.69

5. Compute the expected value of Y (show your math)

E(Y ) = (0)(0.5) + (1)(0.2) + (2)(0.3) = 0.8

6. Compute the Variance of Y (show your math)

V (Y ) = (0 0.8)2 (0.5) + (1 0.8)2 (0.2) + (2 0.8)2 (0.3) = 0.76

7. Compute the covariance of X and Y (show your math)

COV (X, Y )

Problem 16

Last year 45% of all cars traveling on Maryland highways were exceeding the speed limit of 65 mph. A cop randomly

selects (i.i.d) n = 7 cars traveling on I-95, and records if they are above the speed limit.

(A) What is the probability that all the cars are traveling above speed limit?

Answer. This probability is p7 = 0.457 = 0.00373669453125.

(B) What is the probability that exactly 2 cars are driving above speed limit?

21

P (X = 2) =

7!

0.452 0.555 = 0.21402168046875

2!5!

(C) What is the probability that exactly 5 cars are driving above speed limit?

Answer. Using the binomial probability formula

P (X = 5) =

7!

0.455 0.552 = 0.11722149140625

5!2!

(D) What is the expected number of cars exceeding the speed limit?

Answer. The expected value of the binomial distribution is E(X) = np = 7 0.45 = 3.15

Problem 17

Use the following table to solve the question

P (Z < 2.576) = 0.995

Normal Distribution

P (Z < 1.645) = 0.95

P (Z < 1.96) = 0.975

P (Z < 0.842) = 0.8

1. Compute a 99% confidence interval for the proportion

Answer. The confidence interval is such that:

p p

P z1 2 < q

p(1

p)

< z1 2 1

where the value z1 2 is such that P (Z < z1 2 ) = 1 2 . In our case 1 = 0.99 and so 1 /2 = 0.995.

From the table at the end of the exam booklet we get P (Z < 2.576) = 0.995. So the confidence interval is

r

r

p(1 p)

0.44(1 0.44)

p 2.576

= 0.44 2.576

= [0.311, 0.569]

n

98

2. Compute a 95% confidence interval for the proportion

Answer. The confidence interval is such that:

P z1 2

p p

<q

p(1

p)

< z1 2 1

where the value z1 2 is such that P (Z < z1 2 ) = 1 2 . In our case 1 = 0.95 and so 1 /2 = 0.975.

From the table at the end of the exam booklet we get P (Z < 1.96) = 0.975. So the confidence interval is

r

r

p(1 p)

0.44(1 0.44)

p 1.96

= 0.44 1.96

= [0.342, 0.538]

n

98

22

Answer. The confidence interval is such that:

P z1 2

p p

<q

p(1

p)

< z1 2 1

where the value z1 2 is such that P (Z < z1 2 ) = 1 2 . In our case 1 = 0.9 and so 1 /2 = 0.95. From

the table at the end of the exam booklet we get P (Z < 1.645) = 0.95. So the confidence interval is

r

r

p(1 p)

0.44(1 0.44)

p 1.645

= 0.44 1.645

= [0.358, 0.522]

n

98

4. Compute a 80% confidence interval for the proportion

Answer. The confidence interval is such that:

P z1 2

p p

<q

p(1

p)

< z1 2 1

where the value z1 2 is such that P (Z < z1 2 ) = 1 2 . In our case 1 = 0.8 and so 1 /2 = 0.9. From

the table at the end of the exam booklet we get P (Z < 1.282) = 0.9. So the confidence interval is

r

r

p(1 p)

0.44(1 0.44)

= 0.44 1.282

= [0.376, 0.504]

p 1.282

n

98

23

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