P1.

Quantitative Analysis
8.2. Standard Normal pdf CDF
8.2 Discrete Probabilities
8.2 Probability Matrix
8.2 Bayes Theorem p37-38
8.2. Bayes Theorem p41
8.2 Bayes Theorem p43
302.2
302.3
Sheet6
Sheet1 (5)
Sheet1 (6)
Sheet1 (7)
Sheet1 (4)
Sheet1 (3)
Sheet1 (2)
Sheet1
Sheet2
 normal
mean 0
variance 1
std dev 1

X normal
(4.0) 0.013%
(3.9) 0.020% standard normal
(3.8) 0.029% 45.000%
(3.7) 0.042% 40.000%
(3.6) 0.061% 35.000%
(3.5) 0.087% 30.000%
(3.4) 0.123% 25.000%
(3.3) 0.172% 20.000%
(3.2) 0.238% 15.000%
(3.1) 0.327% 10.000%
(3.0) 0.443% 5.000%
(2.9) 0.595% 0.000%
(2.8) 0.792% ) ) ) ) ) ) ) ) ) ) )
.0 .6 .2 .8 .4 .1 .7 .4 .0 .6 .2 .2 .6 .0 .4 .8 .2 .6 .0
(2.7) 1.042% (4 (3 (3 (2 (2 (2 (1 (1 (1 (0 (0 0 0 1 1 1 2 2 3
(2.6) 1.358%
(2.5) 1.753%
(2.4) 2.239%
1% (2.3) 2.665% 2.665%
(2.3) 2.833%
(2.2) 3.547%
(2.1) 4.398%
(2.0) 5.399%
(1.9) 6.562%
(1.8) 7.895%
(1.7) 9.405%
5% (1.6) 10.314% 10.314%
(1.6) 11.092%
(1.5) 12.952%
(1.4) 14.973%
(1.3) 17.137%
(1.2) 19.419%
(1.1) 21.785%
(1.0) 24.197%
(0.9) 26.609%
(0.8) 28.969%
(0.7) 31.225%
(0.6) 33.322%
(0.5) 35.207%
(0.4) 36.827%
(0.3) 38.139%
(0.2) 39.104%
(0.1) 39.695%
0.0 39.894%
0.1 39.695%
0.2 39.104%
0.3 38.139%
0.4 36.827%
0.5 35.207%
0.6 33.322%
0.7 31.225%
0.8 28.969%
0.9 26.609%
1.0 24.197%
1.1 21.785%
1.2 19.419%
1.3 17.137%
1.4 14.973%
1.5 12.952%
1.6 11.092%
1.7 9.405%
1.8 7.895%
1.9 6.562%
2.0 5.399%
2.1 4.398%
2.2 3.547%
2.3 2.833%
2.4 2.239%
2.5 1.753%
2.6 1.358%
2.7 1.042%
2.8 0.792%
2.9 0.595%
3.0 0.443%
3.1 0.327%
3.2 0.238%
3.3 0.172%
3.4 0.123%
3.5 0.087%
3.6 0.061%
3.7 0.042%
3.8 0.029%
3.9 0.020%
4.0 0.013%
rmal

2 6 0 4 8 2 6 0 4 8
0. 0 . 1. 1. 1. 2. 2. 3 . 3. 3.
 X X^2 p(x)
1 1 1.8% 0.01818 0.17370
2 4 7.3% 0.14545 0.31796
3 9 16.4% 0.49091 0.19474
4 16 29.1% 1.16364 0.00240
5 25 45.5% 2.27273 0.37566
sum 55.0 4.09091 1.06446
a= 0.018182 1.03173
3.05918

p = f(x) = p*
x x^3 a*x^3 x*f(x) (x- mu)
1 1 2.78% 0.028 0.082
2 8 22.22% 0.444 0.116
3 27 75.00% 2.250 0.058
Sum: 36 2.722 0.256
a= 0.02778 SQRT: 0.506
Table 2-2 and 2-3: Gujarati's illustration of bivariate (joint) random variable (Tables below)
On the difference between marginal (unconditional), joint, and conditional probability

Input the number of printers sold (0-4): 1

MARGINAL (unconditional) Probability that 1 printer(s) will be sold: 0.16

Input the number of PCs sold (0-4): 2

JOINT Probability that 1 printer(s) and 2 PC(s) will be sold: 0.06

CONDITIONAL Prob. that 2 PC(s) are sold, given 1 printers are sold: 0.375
i.e., = P ( 2 PC | 1 Printer )

Table 2-2: Frequency Distribution of Two Random Variables: Number of PCs sold and Number of Printers Sold

Number of PCs Sold

0 1 2 3 4 Total
Printers 0 6 6 4 4 2 22
Sold 1 4 10 12 4 2 32
2 2 4 20 10 10 46
3 2 2 10 20 20 54
4 2 2 2 10 30 46
Total 16 24 48 48 64 200

Table 2-3: Corresponding BIVARIATE PROBABILITY DISTRIBUTION:

Number of PCs Sold

0 1 2 3 4 Total
Printers 0 0.03 0.03 0.02 0.02 0.01 0.11
Sold 1 0.02 0.05 0.06 0.02 0.01 0.16
2 0.01 0.02 0.10 0.05 0.05 0.23
3 0.01 0.01 0.05 0.10 0.10 0.27
4 0.01 0.01 0.01 0.05 0.15 0.23
Total 0.08 0.12 0.24 0.24 0.32 1.00
Number of Printers Sold
 Joint Post
(1) Prior Cond'l Prob Prob
Events P[A(i)] P(B|A) P(B'|A) A&B P(A|B)
QE 20% 0.7 0.3 0.1400 0.3043478
not QE 80% 0.4 0.6 0.3200 0.6956522
P(B) 0.4600 1.00

Under Out
QE 0.0600 0.1400 0.20
not QE 0.4800 0.3200 0.80

30.4%
Q(1) = QE 4, Q(2) = not QE 4
P = OutPerform, P' = UnderPerf
Conditional Prob
Prob (P | Q[i]) Prob (P' | Q[i]) P
Q(1) = Yes QE = Q 20.0% 70.0% 30.0% Q(1) 14.00%
Q(2) = No QE = Q' 80.0% 40.0% 60.0% Q(2) 32.00%
46.00%

P[Q(1)|P] 30.4%

Prob (Q | . ) Prob (Q' | . )

P 46.00% 30.43% 69.57%
P' 54.00% 11.11% 88.89%
 30.43%

Q(1) = QE 4, Q(2) = not QE 4

P = OutPerform, P' = UnderPerform

P'
6.00% 20.00%
48.00% 80.00%
54.00% 100.00%
Question Setup:
Good Neutral Poor
20% 30% 50%
Increase 80% 50% 15%
Constant 10% 20% 15%
Decrease 10% 30% 70%

Corresponding Probability Matrix; i.e., Joint Probabilties

Good Neutral Poor
Increase 16.0% 15.0% 7.5% 38.5%
Constant 2.0% 6.0% 7.5% 15.5%
Decrease 2.0% 9.0% 35.0% 46.0%
20.0% 30.0% 50.0% 100.0%

Prob (Neutral | Constant) = Joint P(Neutral, Constant) / P(Constant)

Prob (Neutral | Constant) = 6.0% / 15.5% = 38.71%
Question Setup:
Passage Stalled Defeated
20% 50% 30%
Increase 10% 40% 70%
Constant 30% 30% 20%
Decrease 60% 30% 10%

Corresponding Probability Matrix; i.e., Joint Probabilties

Passage Stalled Defeated
Increase 2.0% 20.0% 21.0% 43.0%
Constant 6.0% 15.0% 6.0% 27.0%
Decrease 12.0% 15.0% 3.0% 30.0%
20.0% 50.0% 30.0% 100.0%

Prob (Passage | Constant) = Joint P(Passage, Constant) / P(Constant)

Prob (Neutral | Constant) = 6.0% / 27.0% = 22.22%
 Joint Post
(1) Prior Cond'l Prob Prob
Events P[A(i)] P(B|A) P(B'|A) A&B P(A|B)
j survive 0.940 0.990 0.01000 0.9309 0.999359
j default 0.060 0.010 0.99000 0.0006 0.000641
P(B) 0.9315 1.00

Investment Grade
Survive Default
Junk Survive 96.030% 0.940% 97%
Bond Default 2.970% 0.060% 3.0%

99% 1%

Prob (i def | j def) 1.9802%

Prob (j def | I def) 6.00%

89.300% 4.700%
5.400% 0.600%
1.98%
 Joint Post
(1) Prior Cond'l Prob Prob
Events P[A(i)] P(B|A) P(B'|A) A&B P(A|B)
A(1) 0.65 0.02 0.98 0.0130 0.42623
A(2) 0.35 0.05 0.95 0.0175 0.57377
P(B) 0.0305 1.00

G B
A1 0.6370 0.0130
A2 0.3325 0.0175

20% 50% 30%

3% 2% 1%
97% 98% 99%

Economy
Downturn Stable Growth
Survive 19.40% 49.00% 29.70% 98.10%
Bond B
Default 0.60% 1.00% 0.30% 1.90%

20.00% 50.00% 30.00%

31.58% 52.63% 15.79%

0.116400%
 Joint Post
(1) Prior Cond'l Prob Prob
Events P[A(i)] P(B|A) P(B'|A) A&B P(A|B)
A(1) 0.65 0.02 0.98 0.0130 0.42623
A(2) 0.35 0.05 0.95 0.0175 0.57377
P(B) 0.0305 1.00

G B
A1 0.6370 0.0130
A2 0.3325 0.0175
 Guj 2.12 L1.35 3.22
P(A) 0.5 0.666667 1.0% P(B1) 20%
P(A') 0.5 0.333333 0.99 P(B2) 30%
P(B3) 50%
P(B|A) 1 0.333333 0.800
P(B|A') 0.5 1.000 0.100 P(A|Bx) 4%
P(A|Bx) 3%
P(B) 0.75 0.555556 0.107 P(A|Bx) 2%
P(A|B) 0.666667 0.4000 0.0748
P(B1 | A) 29.6%
0.800%
10.700%
7.48%
 35.2
50%
30%
20%

3.0%
2.0%
1.0%

65.2%
26.1%
8.7%

29 0.333333 29.33333 234.6667

 Guj 2.12 L1.35 3.22
P(T) P(A) 0.5 10% 0.666667 1.0% P(B1)
P(A') 0.5 0.9 0.333333 0.99 P(B2)
P(B3)
P(F|T) P(B|A) 1 30% 0.333333 0.800
P(F|T') P(B|A') 0.5 5.0% 1.000 0.100 P(A|Bx)
P(A|Bx)
P(B) 0.75 7.500% 0.555556 0.107 P(A|Bx)
P(T | F) P(A|B) 0.666667 0.4 0.4000 0.0748
P(B1 | A)
0.800%
10.700%
7.48%
 35.2
20% 50%
30% 30%
50% 20%

4% 3.0%
3% 2.0%
2% 1.0%

29.6% 65.2%
26.1%
8.7%

29 0.333333 29.33333
234.6667
P(G) 70% 80% 56.00% 56.000%
20% 14.00% 65.00%
P(G') 30% 30% 9.00% 86.15%
70% 21.00%
100.00%

P(2H) 50% 100% 50.00% 50.000%

0% 0.00% 75.00%
P(H') 50% 50% 25.00% 66.67%
50% 25.00%
100.00%

P(R) 25% 9% 2.25% 2.250% 22.7500%

91% 22.75% 3.00% 97.00%
P(R') 75% 1% 0.75% 75.00% 23.45%
99% 74.25%
100.00%
 Guj 2.12 L1.35 3.22
P(A) 0.5 0.666667 1.0% P(B1) 20%
P(A') 0.5 0.333333 0.99 P(B2) 30%
P(B3) 50%
P(B|A) 1 0.333333 0.800
P(B|A') 0.5 1.000 0.100 P(A|Bx) 4%
P(A|Bx) 3%
P(B) 0.75 0.555556 0.107 P(A|Bx) 2%
P(A|B) 0.666667 0.4000 0.0748
P(B1 | A) 29.6%
0.800%
10.700%
7.48%
 35.2
50%
30%
20%

3.0%
2.0%
1.0%

65.2%
26.1%
8.7%

29 0.333333 29.33333 234.6667

 Guj 2.12 L1.35 3.22
P(T) P(A) 0.5 10% 0.666667 1.0% P(B1)
P(A') 0.5 0.9 0.333333 0.99 P(B2)
P(B3)
P(F|T) P(B|A) 1 30% 0.333333 0.800
P(F|T') P(B|A') 0.5 5.0% 1.000 0.100 P(A|Bx)
P(A|Bx)
P(B) 0.75 7.500% 0.555556 0.107 P(A|Bx)
P(T | F) P(A|B) 0.666667 0.4 0.4000 0.0748
P(B1 | A)
0.800%
10.700%
7.48%
 35.2
20% 50%
30% 30%
50% 20%

4% 3.0%
3% 2.0%
2% 1.0%

29.6% 65.2%
26.1%
8.7%

29 0.333333 29.33333
234.6667
P(G) 70% 80% 56.00% 56.000%
20% 14.00% 65.00%
P(G') 30% 30% 9.00% 86.15%
70% 21.00%
100.00%

P(2H) 50% 100% 50.00% 50.000%

0% 0.00% 75.00%
P(H') 50% 50% 25.00% 66.67%
50% 25.00%
100.00%

P(R) 25% 9% 2.25% 2.250% 22.7500%

91% 22.75% 3.00% 97.00%
P(R') 75% 1% 0.75% 75.00% 23.45%
99% 74.25%
100.00%
P(G) 70% 80% 56.00% 56.000%
20% 14.00% 65.00%
P(G') 30% 30% 9.00% 86.15%
70% 21.00%
100.00%

P(2H) 50% 100% 50.00% 50.000%

0% 0.00% 75.00%
P(H') 50% 50% 25.00% 66.67%
50% 25.00%
100.00%

P(R) 25% 9% 4.50% 2.250%

91% 45.50% 5.00%
P(H') 75% 1% 0.50% 45.00%
99% 49.50%
100.00%
 Passage Stalled Defeated
Increase 20% 50% 30%
No change 10% 40% 70%
Decrease 60% 30% 10%