1st Answer

(a) In order to summarize the performance of both the firms after we calculate out the
total sales of both the firms, we calculate the mean (average). Mean, when referring to
arithmetic mean, is the same as average. It is calculated by adding all the values and
dividing by the No. of values. Arithmetic mean is chosen as it is a central tendency
measure. Also, it is more stable as not affected by fluctuations in sampling.

In the above case, there were 9 periods.

Arithmetic Mean (Firm A) = 120 + 100 + 110 + 80 + 90 + 70 + 50 + 60 + 40 / No. of
periods
Mean =, Sum of all the sales figures /- No. of periods

For Firm A,
Total Sales =120 + 100 + 110 + 80 + 90 + 70 + 50 + 60 + 40 =720
Number of periods = 9
Arithmetic Mean = Total of sales figures / Number of periods
Mean = 720 / 9
Mean = 80 (in million Rs.)

For Firm B:
Total Sales = 50 + 40 + 60 + 90 + 80 + 70 + 110 + 100 + 120 =720
Number of periods = 9
Mean = Total Sales Figure / Number of periods
Mean = 720 / 9
Mean = 80 (in million Rs.)
Standard Deviation: It is a measure of how spread out numbers is. It is the square root
of the Variance, and the Variance is the average of the squared differences from the
Mean.

For Firm A:

Mean=80
,
A A- A (A - A)2
120 40 1600
100 20 400
110 30 900
80 0 0
90 10 100
70 -10 100
50 -30 900
60 -20 400
40 -40 1600

Total Σ (A- A) = 0 ∑ (A - A)2 = 6000

Variance is denoted by σ2 and SD is the square root of Variance, denoted by σ

σ2 = Σ [A - (A)] ² / 9

= 6000/9

= 666.666

______
σ= ,-,√ 666.666 = 25.819
For Firm B:
Mean=80

B B- B (B - B)2
50 -30 900
40 -40 1600
60 -20 400
90 10 100
80 0 0
70 -10 100
110 30 900
100 20 400
120 40 1600
Total ∑ (B - B)2 = 6000

σ2 =,-, Σ [A - (A)] ² / 9
= 6000 / 9
= 666.666
_________
σ = ,-,√ 666.666 = 25.819

Comments- Both the mean and standard deviation of the firms are equal.

(b) As both the firms have the same mean and standard deviation, statistically speaking
the performances are the same. Coefficient of Variation will also give the same result in
both the cases, since these methods don’t take time into account.

(c) One of the most common methods to determine the risk an investment poses is
standard deviation. Standard deviation lets us to determine market volatility or the
spread of asset prices from their average price. When prices move wildly, standard
deviation is high, meaning an investment will be risky. Low standard deviation means
prices are calm, so investments come with low risk.
In the above case, both firms have same standard deviation. If we consider figures are
given by time period where last figure represent the latest data, it can be seen that
performance of Firm A has decreased over the period whereas the performance of Firm
B has improved. The mean and standard deviation is the same because the figures are
same for both Firm A and Firm B. However, I would prefer to invest in Firm B because
the performance seems to be improving. If the same trend of performance continues in
the future, Firm b is more likely to provide profits in form of capital appreciation as well
as dividend.
2nd Answer

(a) Correlation denotes the relationship between two variables.

If the value of correlation is positive when the values increase together, and
If the value of correlation is negative when one value decreases as the other increases
Correlation can have a value:
1 is a perfect positive correlation
0 is no correlation (the values don't seem linked at all)
-1 is a perfect negative correlation

R = (𝑛 ⋅ ∑𝑋𝑌 − ∑𝑋 ⋅ ∑𝑌-,-)/ sqrt [𝑛 ∑,𝑋-^2 .− ,(∑𝑋) ^- 2.] ⋅ [𝑛∑,𝑌^-2 .− ,(∑𝑌)-^2.]

X Y X⋅Y X⋅X Y⋅Y  

Experience Income (in
(in years) thousands)
10 25 250 100 625
12 28 336 144 784
6 17 102 36 289
7 18 126 49 324
10 24 240 100 576
8 21 168 64 441
1 10 10 1 100
5 16 80 25 256
Total
59 159 1312 519 3395

R = (𝑛 ⋅ ∑𝑋𝑌 − ∑𝑋 ⋅ ∑𝑌-,-)/ sqrt [𝑛 ∑,𝑋-^2 .− ,(∑𝑋) ^- 2.] ⋅ [𝑛 ∑,𝑌^-2 .− ,(∑𝑌) -^ 2.]

,𝑟- = ,(8 ⋅ 1312 – 59 ⋅ 159)/ sqrt [8 ⋅ 519−,59-2.] ⋅ [8 ⋅ 3395−,159-2.]

..≈ 0.993.

Higher the experience, higher the income since the value is closer to 1.

(b). Coefficient of determination which is more commonly known as R-squared (or R^2),
assesses how strong the linear relationship is between two variables. It is interpreted as
the proportion of the variance in the dependent variable that is predictable from the
independent variable.

R-squared= (0.993^2) = 0.9860

Interpretation- 98.6% of the variation in Income is explained by Experience (years).

(c) The Regression Equation is the algebraic expression of the regression lines. It is
used to predict the values of the dependent variable from the given values of
independent variables.

Regression equation is given by:

Y (dependent variable) = a (y - Intercept) + b (x – Intercept) * x (independent variable)

,In this sum,

𝑎- = (,∑𝑌 ⋅ ∑,𝑋 -^ 2 .− ∑𝑋 ⋅ ∑𝑋𝑌-) / (𝑛 ⋅ ∑,𝑋^-2 .− ,(∑𝑋) ^- 2)

..=, (159⋅519−59⋅1312)- / (8 ⋅ 519 − (,59) ^ -2)

..
=7.62---

𝑏- =, (𝑛 ⋅ ∑ 𝑋𝑌 − ∑𝑋 ⋅ ∑𝑌-) / (𝑛⋅∑,𝑋-^2. −, (∑𝑋)- ^ 2..)

= (,8 ⋅ 1312 – 59 ⋅ 159)- / (8 ⋅ 519 −, (59) ^- 2)..

=1.662.

Therefore the regression equation is given by,

y = 7.62 + 1.662*x

Therefore, the monthly salary for a person having 14 years of experience by assuming
the linear relation between the two variables is

Income (In thousands) = 7.62 + (1.662*14)

= 30.888 (In Thousands)

Conclusion: The monthly salary for a person having 14 years of experience by

assuming the linear relation between the two variables is Rs. 30,888
3rd Answer:

(3a) The following information is given by the sum: The weekly demand of a cell phone
shop is following the normal distribution with average number of cell phones sold is 200
units. Therefore, Mean = 200

Further it is given that 90% of time the demand is lying less than 220 units. Therefore,
P(X < 220) =0.90

Normal distribution, also known as the Gaussian distribution, is a probability distribution

that is symmetric about the mean, showing that data near the mean are more frequent
in occurrence than data far from the mean. In graph form, normal distribution will appear
as a bell curve.

The standard normal distribution is a normal distribution with a mean of zero and
standard deviation of 1. The standard normal distribution is centered at zero and the
degree to which a given measurement deviates from the mean is given by the standard
deviation

To calculate probability value for normal distribution, z- score is required to be

calculated,

Z-Score is given by = (Value of X – Mean) / Standard Deviation

For probability of 0.90, z-score is given by the standard normal distribution table as
1.282

Therefore from the formula of Z- score we know that,

1.282 = (220 – 200) / Standard Deviation

Standard Deviation = (220 – 200) / 1.282

=15.601

(3b)
We need to compute the value where

P(X < Lowest stock) = 0.05

At 0.05 probability value, z-score is given by the standard normal distribution table as
-1.645

Z-Score is given by = (Value of X – Mean) / Standard Deviation

In the current case,

-1.645 = (Lowest Stock – 200) / 15.601
-1.645 * 15.601= (Lowest Stock – 200)
-25.6636 = (Lowest Stock – 200)
Lowest Stock = -25.6636 + 200
Lowest Stock = 174.336 units

Conclusion: The standard deviation of the distribution is 15.601 and the lowest stock
is 174.336 units.