1. When constructing a confidence interval, which case is preferable?

A. Large confidence level, small confidence interval

B. Small confidence level, small confidence interval
C. Small confidence level, large confidence interval
D. Large confidence level, large confidence interval

Answer: (A) A precise interval is preferred, but at the same time we wish for a high confidence
level.

2. Assume that male weights are normally distributed with a national average of 165.7 lbs.
The probability of an individual chosen at random having a weight of greater than 190 lbs.
is 25%. The probability that the mean weight of a sample of 40 men being greater than 190
lbs. is 2%. This rather large difference is due to the fact that

A. Standard deviation of samples is larger than the standard deviation of the

population
B. The distribution of sample means is less variable than the distribution of
individual data
C. Sampling error may have occurred during the research
D. The mean of the sample means varies from the population mean

Answer: (B) Since the distribution of the means has a lower standard deviation (called
standard error). As a consequence, the probability of values greater than 190 is smaller in
the case of average weights

3. The 68.3% confidence interval for a population mean (with known population standard
deviation and sufficiently large sample size) has a margin of error of 20. If we quadruple
the sample size, but have the same margin of error for the new confidence interval, the
approximate confidence level associated with the new confidence interval would be

A. 99%
B. 90%
C. 95%
D. Cannot be determined without more information

Answer: (C) First, note that we are assuming that σ is known so we will deal with z-values
here. A 68.3% confidence interval implies that z1-α = 1. Thus, the margin of error is 1*σ/√n.
Since quadrupling the sample size cuts the standard error in half, the Z multiplier should
have gone up by the same amount for the margin of error to remain the same. So now z1-α =
2, which corresponds roughly to 95% confidence interval.

4. A retail store buys imported apparel from a cheap offshore supplier. The clothing is not
of top quality, but the customers like the low price. The retailer would like to know the
defective rate of apparels to within a margin of error of 0.05 (95.4% confidence). Regardless
of the true defect rate, the smallest sample size that guarantees this margin for error is
 A. 25 items
B. 100 items
C. 200 items
D. 400 items

Answer: (D) Using the formula, we have n ≥ (z1-α/DMOE)2*(1/4). For 95.4% confidence, z1-
α=2. DMOE = 0.05. Thus, the resulting answer is 400.

(Q5– Q6) A private equity firm is considering purchasing a chain of retail clothing stores.
Preliminary to the purchase, it has obtained data on the level of sales at 64 retail outlets of the
chain. The data gives the sales in dollars per square foot per year. In order for the acquisition
to be profitable, the stores must produce sales in excess of$380 per square foot annually.

5. Each store in this chain has approximately 6,000 square feet of retail space. The 95%
confidence interval for the expected total sales during a year at a store in this chain is
approximately

A. $6,370,000 to $6,433,000
B. $2,220,000 to $2,600,000
C. $2,409,328 to $2,409,391
D. $2,409,106 to $2,409,614

Answer: (B) We are given the 95% confidence interval for the per sq ft profitability as [369.92,
433.20]. Multiplying this with 6000 gives us the required confidence interval for the store
profitability, which is roughly [2200000,2600000].

6. Had the analysis been conducted with a larger sample of 256 stores, then we can be
assured that
 A. The sample mean would have been larger
B. The sample standard deviation would have been smaller
C. The confidence interval for μ would be about ½ as long as shown
D. The confidence interval for μ would be about ¼ as long as shown

Answer: (C) Since the margin of error is inversely proportional to square root of the sample
size, i.e., √n, quadrupling n will halve the margin of error.

7. The owner of a Pizza delivery restaurant is concerned about meeting the delivery time
target of 30 minutes. He has kept close track of the delivery times over a very long period
and has found that they follow a normal distribution with mean of 25 minutes and
standard deviation of 5 minutes. If the proportion of delayed deliveries now becomes 0.25,
what is the new mean duration of the delivery process? Assume that the standard
deviation remains unchanged.

A. 22.1
B. 26.7
C. 32.5
D. 35.2

Answer: (B) This is a straightforward normal distribution calculation. Essentially, X ~ N(μ,52)

and P(X>30) = 0.25. In other words, P(X30) = 0.75. Looking up the z-table, we find that the z-
value corresponding to this is 0.6745. Then, back-calculating μ = x-z*σ = 30 - 0.67*5 = 26.65.

8. A company’s manufacturing process uses 500 gallons of water at a time. A “scrubbing”

machine then removes most of a chemical pollutant before pumping the water into a
nearby lake. To meet federal regulations the treated water must not contain more than 80
parts per million (ppm) of the chemical. Because there is a fine charged if regulations are
not met, the company sets the machine to attain an average of 75 ppm in the treated water.
The machine’s output can be described by a normal model with standard deviation 4.2
ppm. The company’s lawyers insist that not more than 2% of the treated water should be
over the limit. In order to achieve this, to what mean should the company set the
scrubbing machine? Assume the standard deviation does not change.

A. 82 ppm
B. 75 ppm
C. 71 ppm
D. 85 ppm

Answer: (C) Essentially, this is a simple normal distribution calculation. Let X be the random
variable that denotes the concentration of the chemical in the treated water. Then, we know
that X ~ N(μ, 4.22). Moreover, we are also told that P(X>80)=0.02 or in other words,
P(X80)=0.98. Then, looking up the z-table, we get that the corresponding z-value is 2.05.
Again back-calculating μ = x-z*σ = 80-2.05*4.2 = 71.39.

9. Let X1 and X 2 be the means of two separate samples of size 25 each that are randomly,
and independently selected from the same population. Assume that CLT conditions
 apply. Consider the following expressions: a = P( − 0.2  X1   +  ) , and b =
P( −   X 2   + 0.2 ) . Which of the following statements is true?

A. a > b
B. a < b
C. a = b
D. Insufficient information

Answer (C). The distribution of the sample means will be normal. In a, area to the left of mean
will be same as to the right of the mean in b. Further, in a, area to right of the mean is equal to
the area to the left of the mean in b.

10. A basketball player shoots 60 free throws a day and historically makes 75 percent of them.
What is the probability that he will make at most 80 percent tomorrow?

A. 0.10
B. 0.81
C. 0.19
D. 0.89

Answer(B). This is a sample of size, n=60 each day. The population proportion of throws that
are successful is Π=0.75. The sample proportions are normally distributed with mean = 0.75
and Standard error = √(0.75*0.25/60) = 0.056. To find that probability that the player makes at
most 80% of the throws in a sample, we find the corresponding z-score = (0.8 – 0.75)/0.056 =
0.89. From z-tables, P(Z<0.89) is 0.81.

(Q11-12) You have recently joined a Weight Watchers club. Suppose that the number of times
you expect to visit the club in a month is represented by a normally distributed random
variable with a mean of 12 and a standard deviation of 2.50.

11. Over the course of next year, what is the probability that you average more than 13 visits
to the club per month?

A. 0.16
B. 0.42
C. 0.34
D. 0.08

Answer(D). Note that μ = 12, σ = 2.5. Also, n = 12 because of 12 months in a year. Let X be the
random variable that denotes the number of monthly visits. Then, X~N(12, 2.52). Since the
population is normally distributed, sample mean is also normally distributed irrespective of
the sample size. In other words, ~N(12,(2.5/√12)2). Then, Pr( >13) = Pr (Z> (13-
12)/(2.5/√12)) = Pr (Z > 1.39) ≈1-0.92≈0.08.

12. Suppose your friend also joins this club. The number of his visits to the club each month is
also a random variable and follows a similar distribution as yours. What is the probability
that the number of visits you do exceeds the number of visits by your friend by 4 in any
month?
 A. 0.03
B. 0.13
C. 0.23
D. 0.43

Answer(B). Number of visits by you and your friend are both normally distributed random
variables (X1 and X2), with mean = 12 and Std dev = 2.5. Their difference, Y=X1-X2 is also a
normally distributed random variable with mean = 0 and Std dev = √((2.5)^2+(2.5)^2)=3.53.
We want to find Pr[Y>4] = Pr[Z > (4-0)/3.53]= Pr[Z > 1.13]= 1-0.87 = 0.13.

13. As the value of sample proportion increases from 0.1 to 0.9, for a given level of confidence,
the precision of predicting the population proportion

A. Always increases
B. Always decreases
C. First increases, then decreases
D. First decreases, then increases

Answer (D)Note that the standard deviation of the sample proportion is approximated by
sqrt(p*(1-p)/n). This increases as p increases from 0.1 to 0.5 and then decreases from 0.5 to 0.9.
Consequently, the margin of error also follows the same behavior.

14. Terrahard Enterprises would like to estimate its share of the cloud storage market, i.e., proportion of
internet users who use their services to store files on a cloud, with 98% confidence. If the margin of
error tolerable to them is 1%, they should choose a sample size of approximately

A. 10000
B. 13600
C. 2500
D. 1000

Answer (B) From class slides n >= (z_{1-\alpha}/0.01)^2 * (1/4). Reading from the table: z-
value with left tail area equaling 0.99 since two-sided is 2.3263. Calculating we obtain
13529.179.

Use the following information to answer the following two questions.

The owner of a food delivery service is concerned about meeting the delivery time target of 30
minutes. He recorded the delivery times for a random sample of 196 food deliveries and found that
the sample mean and standard deviation are 21 minutes and 4 minutes respectively. He also found
that 28 of these deliveries took over 30 minutes, which were to be given away for free.

15. What should be the owner’s estimate of the average time taken to deliver food? (assume 95%
confidence level)

A. [20.04, 21.96]
B. [20.44, 21.56]
C. [20.34, 21.66]
D. [19.44, 22.56]
Answer (B) The sample mean and the standard deviation is given to be 21 and 4 minutes
respectively. The sample size is 196. The t-distribution with 195 degrees of freedom is
appropriate. Reading approximate values for two-sided with right-tail probability of 0.025 we
get 1.984. Therefore the 95% CI for the average time to deliver food is [21-1.984*4/sqrt(196),
21+1.984*4/sqrt(196)] = [20.43, 21.57].

16. Which of the following statements is correct?

A. The owner can be 95% confident that not more than 20% of the times the food delivery
needs to be given away for free
B. The owner can be sure that roughly only 14% of the deliveries will have to be given for
free.
C. The 95% confidence interval for the percentage of free deliveries in the sample is 9.4% to
19.2%
D. The percentage of free deliveries can be estimated as 14.3% with an estimated standard
error of 2.5%

Answer (D) The proportion of free deliveries is estimated as 28/196 = 0.1428, with an
estimated standard error of sqrt(p(1-p)/n), that is, sqrt (0.1428*(1-0.1428)/196) = 0.0249.
.

17. Ratings of all project managers in a large multi-national company approximately follow a normal
distribution. It is known that 75 % of the project managers have a rating of less than 80 out of 100.
Similarly, 25 % of the project managers have a rating of less than 60 out of 100. If only top 5 % of
the project managers are promoted to the position of program manager, what is the minimum
rating that would ensure promotion?

A. 100
B. 95
C. 90
D. 85

Answer (B) Let rating R be the underlying random variable. P(R < 80) = 0.75, and P(R < 60) =
0.25. We need to find the cut-off such that P(R > cut-off) = 0.05. Let mu and sigma be
the parameters of the normal distribution P( [R- mu]/sigma < [80 - mu]/sigma) = 0.75,
reading from the table we get [80 - mu]/sigma = 0.6745 and similarly [60 - mu]/sigma = -
0.6745. Solving which we obtain mu = 70, and\sigma = 14.83. Now P([R-70]/14.83 > [cut-off
– 70]/14.83) = 0.05. Again, reading from the table for the left-tail area of 0.95 of we obtain
[cut-off – 70]/14.83 = 1.6449, therefore cut-off = 94.39.

18. A Market research division wants to estimate the proportion of consumers who prefer their brand
of cereal, labelled as X. A sample of n = 100 persons was randomly selected. Each person in the
sample was given two cereal boxes, one of brand X and another one of brand Y, with labels
removed. Each person has to report which brand they preferred. The following results were
obtained:

Number preferring X: 59
Number preferring Y: 37
Number of Ties: 4

Then the 99% confidence interval for the proportion of consumers in the population who prefer
brand X over brand Y is
 A. [0.50, 0.75]
B. [0.25, 0.49]
C. [0.46, 0.72]
D. Cannot be determined

Answer (C) The sample proportion of consumers who prefer X over Y, is 59/100. Reading
z_0.995 as the left-tail area we obtain 2.5758. The estimate of the standard error of the sample
proportion is sqrt(0.59*(1-0.59)/100) = 0.04918. Thus, the required 99% CI is [0.4633, 0.7166].

Use the below information to answer the next two questions.

The following is the histogram of the population data with mean 0.0035 and
standard deviation 0.0452.

Consider that we draw 10000 random samples each of size 15 from

population. The histogram of the 10000 sample means is given
below.

19. Which of the following is the most likely summary for the sample means data?

A. The standard deviation of the sample means data is 0.0105

B. The standard deviation of the sample means data is 0.0452
C. The standard deviation of the sample means data is 0.000452
D. The standard deviation of the sample means data is 0.0031

Answer (A) The theoretical standard deviation for the sample means is
0.0452/sqrt(15) = 0.0117. The value obtained as a result of the numerical experiment
is closest to this.

20. Consider that we take 10000 samples each of size 25 each from the same population. Which of the
following is the most likely histogram for the sample means?

A. B.

C. D.
Answer (C) The histogram where the visible variability is lower, as we now look at the means of 25
samples instead of 15 earlier.

21. We compute the (1 − 𝛼)% confidence interval (CI) using the same 𝛼 for both the proportion of
population who are in favor of the increase of tax on cigarettes to pay for the healthcare reform and
the proportion of population who are against the increase of tax on cigarettes to pay for the
healthcare reform. Then

A. the CI is wider for the proportion of population in favor of the increase of tax
B. the CI is wider for proportion of population against of the increase of tax
C. the width of the CI is the same in both cases
D. Cannot be determined, since 𝛼 is not given

Answer (C): The width of the CI is twice the margin of error, which here is given by sqrt(p(1-p)/n)*z-value.
Since the sample size and the z-value are the same, whether you compute for those in favor or those against,
the only difference is in one case you take the p and in other case you take the (1-p). But the product p(1-p)
does not change. Therefore, the width of the CI remains the same

22. Last month you obtained a sample of 400 checkout receipts from Reliance Fresh. An 80% confidence
interval was computed for the mean amount spent per receipt: $17.50 to $32.50. Now your boss
says he really would like a 95% confidence interval for this data. Unfortunately, you threw out all
the remaining information! In spite of that, you are clever enough to determine the 95% confidence
interval. What is it?

A. $13.53 to $36.47
B. $15.38 to $34.62
C. $16.06 to $33.94
D. Cannot be determined

Answer (A) The point estimate is given by (17.50 + 32.50)/2 = 25. The margin of
error for the 80% CI is given by (32.50 – 17.5)/2 = 7.5. You will need t_0.975 *
sigma/20 whereas it is given that t_0.90 * sigma /20 so compute 7.5 * t_0.975 / t_0.90
= 11.47816. Thus, the lower limit is 13.52184. Similarly calculate for the upper limit.

23. Dhanvin calculated a 95% confidence interval for the population mean of the amount of
aluminum in an automobile component, using the population standard deviation, σ. The upper
limit of the confidence interval turned out to be 367.6 grams. If he wanted to increase the
confidence level to 99% and still have the same width as that of the earlier 95% confidence
interval, what should be the increase in the sample size?

A. 131%
B. 172%
C. 73%
D. 32%
Answer (C) The same width means the same margin of error. We want z_0.975 *
sigma/ sqrt(n_1) = z_0.995 * sigma/ sqrt(n_2). Then, n_2/n_1 = (z_0.995
/ z_0.975)^2 = 1.727079. Therefore, the increase in sample size in 73%.

24. Swetha was studying the impact of demonetization in the state of Meghalaya. She had
selected a simple random sample of 225 persons. 54 of the 225 persons felt that
demonetization was good for the economy. She built a 98% two-sided confidence interval
for the population proportion (𝜋) of persons who felt that demonetization was good for the
economy. What is the lower limit of this confidence interval?

A. 0.2117
B. 0.2381
C. 0.1738
D. 0.2356

Answer (C) Reading from the Z-table, z_0.99 = 2.3263. The lower limit for this
interval is given by (54/225) – z_0.99 * sqrt {(54/225) (1 – (54/225))/ 225}
= 0.1737645.

Use the following information to answer the following two questions.

A soft-drink bottle filling company wants to avoid under filling the bottles to maintain quality
standard. The number of ounces injected into a 12-oz bottle is normally distributed with mean
12-oz and standard deviation of 0.04 oz. Bottles that contain below 11.9 oz do not meet the
company’s standard and are sold at a reduced price of 5$ instead of 7$.

25. In the long run, what percentage of the bottles has to be sold at a discounted a price?

A. 0.6%
B. 0.05%
C. 0.5%
D. 50%

Answer (A) Let V be the underlying random variable. We told V is distributed normal with
mean 12 and standard deviation 0.04. We are asked to find P (V < 11.9) = P (Z< [11.9 –
12]/0.04) = P (Z < -2.5). Reading from table we get 0.006210. Thus 0.6% in the long run.

26. When the bottle filling system’s belt is worn out, the number of ounces injected into a 12-
oz bottle is normally distributed with mean 11.95 oz and standard deviation of 0.2 oz. If
20,000 bottles are filled with this faulty process, then on an average the total revenue
generated by these 20,000 bottles will be approximately

A. $124,000
B. $140,000
C. $100,000
D. $150,000

Answer (A) After worn out V ~ N (11.95, 0.2^2). Recall that if V < 11.9 then the selling
price is $5, otherwise it is $7. Therefore, we compute P (V < 11.9) = P (Z < [11.9 –
11.95]/0.2) = P (Z < -0.25) = 0.4 approximately. Thus, we compute 20000*0.4*$5 +
20000*0.6*$7 = $124000.

Use the following information to answer the following question..

As a naïve investor you have been considering an investment instrument

offering risk free return at 0.15%. An investment manager suggests that you
could invest in IBM stocks offering mean returns as high as about 0.35%. To
see if this is true, you obtained monthly returns data of IBM stock from Jan
2010 to December 2015. A familiar JMP summary of the dataset is provided to
you below.

Mean 0.0034979
Std Dev 0.0452404
Std Err Mean 0.0053316
Upper 95% 0.0141288
Mean
Lower 95% -0.007133
Mean
N 72
Kurtosis 0.1544114

27. Which of these is a possible 99% CI for the mean returns for the IBM monthly
stock returns:

A. [-0.01061, 0.01761]
B. [-0.01061, 0.01061]
C. [-0.006133, 0.0131218]
D. [0, 0.0151218]

Answer (A) 99% CI has the lower end point lower than that corresponding to that of
95% CI. Similarly, a higher end point higher than that corresponding to that of 95%
CI.