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Republic of the Philippines
DEPARTMENT OF EDUCATION
Region VII, Central Visayas
DIVISION OF CITY SCHOOLS
City of Naga, Cebu Division
This module was crafted with the goal in mind that learners need a simpler and yet more
comprehensive explanation in the conceptual problems in statistics and probability. This module
is focused on helping every student apply the mean or expected value of the discrete random
variable or the average value when the experiment is repeated many times to real-life situations
such as taking a chance in a lottery or raffle, making a bet in games of chance and considering an
insurance policy. This module will help students make wise and informed decisions whether or
not to engage in the games of chances like raffles, lotteries, gambling and experiments that are
equally likely to happen.
In this module, learners will learn to calculate the probability or the chance of winning and
losing. The knowledge and skill on how to use the formula for the mean and variance will be
important as this will be used to solve real-life problems involving the mean and variance of
probability distributions.
What I Know
Pretest: Choose the letter of the best answer. Write the chosen letter on a separate sheet of
paper.
1. Which of the following represents the mean value of a discrete random variable?
A. Median B. Expected Value C. Variance D. Standard Deviation
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X 1 3 5 7
P(x) 0.09 0.25 0.31 0.35
2. What is the mean or the expected value of the given probability distribution?
A. 4.84 B. 4.61 C. 5.52 D. 3.83
3. Which of the following is the standard deviation of the given probability distribution?
A. 3.01 B. 2.19 C. 2.09 D. 4.21
4. The Parent-Teachers Association of Grade 12 is selling 1000 raffle tickets for ₱ 20.00 each to
raise funds for the coming Family Day Celebration. If you buy 3 tickets, what are your expected
winnings given that the major prizes for the winner is ₱ 2,500.00 worth of groceries?
A. ₱9.10 B. ₱10.21 C. ₱12.01 D. ₱7.50
5. In problem #4, what is the probability of buying 3 tickets?
3 3 997
A. B. C. B. D. None of
2500 1000 1000
These
6. The master’s day carwash loses ₱800 during rainy days and gains ₱3500 when it is not
raining. What is the expected value if the probability of raining is 20%?
A. ₱2,640 B. ₱3,120 C. ₱2,910 D. ₱1,500
7. In problem #6, what is the probability of not raining?
A. 0.20 B. 0.55 C. 1 D. 0.80
For numbers 8-9, refer to the following:
Lorena buy one ₱500.00 raffle ticket for a prize of new Honda Civic car valued at ₱675,000.00.
Two thousand tickets are sold.
8. What is the probability that you will win the prize?
1 1 1
A. 1 B. C. D.
500 2000 675000
9. if X denotes the net gain from the purchase of a randomly selected ticket. Which of the
following table of values shows the probability distribution of X?
10. What is the mean or the expected value for those who will buy the tickets?
A. -162.50 B. -162.25 C. 162.25 D. 162.50
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11. Mr. Chan is planning to open a business in the newly constructed mall in Cebu. His friend
told him that the business has a 70% probability of gaining ₱500,000 and 30% probability of
losing ₱250,000. What is Mr. Chan’s expected value for his business?
A. ₱300,000 B. ₱275,000 C. ₱350,000 D. None of These
12. A card is drawn at random from a deck of cards consisting of cards numbered 1 through 5. A
player wins ₱100 if the number on the card is even and loses ₱100 if the number on the card is
odd. Which of the following table of values shows the probability distribution of X?
A. X 100 100 XB. 100 -100
P(x) 2 3
P(x) 2 3
5 5
5 5
C. X 100 100 X
D. 100 - 100
P(x) −2 3 P(x) −2 3
5 5 5 5
14. In a state lottery, you pay ₱1 and pick a number from 000 to 999. If your number comes up,
you win
₱600. The probability of winning is 0.001. What is the expected value of your profit?
X 599 - 1
P(X 0.001 ?
)
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One of the most important probabilistic concepts in statistics is the Expected Value, also
referred as the Population Mean. The Expected Value of the discrete random variable X,
denoted by E(X) or simply μ, is a Weighted Average of the possible value of X. Before we
present its formula, we would like to point out that the expected value of a random variable
should not be confused with its most probable value. In general, the expected value is not even
one of the possible values of the random variable over infinitely many independent repetitions
of an experiment.
Suppose a simple experiment with a fair coin is tossed. If it lands head, you win ₱100; but if it
lands tail, you lose ₱100.
What is the expected value of this game? When we toss the coin many times, the expected gain
is ₱0 which is neither of the two possible values namely, ₱100 or -₱100.
This is negative (-) because the
amount 100 will be taken from you
Tabular Representation
if you lose.
x ₱100 - ₱100
P(X) 1 1
2 2
the probability of landing a head the probability of landing a tail (T)
(H)
Example 1
In a game of chance, Nicanor is paid ₱50 if he gets all heads or all tails when three coins are
tossed and he pays ₱30 if either 1 or 2 heads show. What is the expected gain?
Solution
50 if he wins - 30 if he loss
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Is associated with (HHH, (HHT, HTH, HTT, THH, THT, THH)
TTT) 6 out of 8
2 out of 8
2 6
Probability = Probability =
8 8
Note: H = Head, T = Tail
X 50 - 30
P(X) 2 6
8 8
Thus,
E( X)=(50) ( 28 )+(−30)( 68 )
100 −180
E( X)= ( )(
8
+
8 )
100 180
E( X)= −
8 8
E( X)=−10
Interpretation
Since this is negative (- 10), we interpret this as a loss. We then say that, in the long run, the
average in gain is – 10. In other words, Nicanor is expected to lose ₱ 10 if he joins this game
over and over again.
The mean μ of the random variable X provides us with a measure of the central location of the
distribution of X, but it does not give us information on how the various values are dispersed
from μ. We need a measure that indicates whether the values of X are clustered about μ or
widely scattered from μ .
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Definition: The standard deviation of X is SD ( X )+ σ= √ σ 2.
Example 2
x 0 1 2 3 4
P(X = x) 0.17 0.34 0.24 0.20 0.05
Should the radio station consider getting more phone lines installed?
Solution:
SD ( X )=σ =√ 1.28=1.13
Interpretation:
The answer is no because the mean (or expected value) number of people on hold is 1.62. Since
the standard deviation is 1.13, most callers would be accommodated by having four phone lines
because μ+2 σ would be 1.62 +2(1.13) = 3.88. Very few callers would get a busy signal at least
75% of the caller either get through or be put on hold.
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Step 1. Compute the mean value/expected value of the random variable X.
Step 2. Find the summation of the product of the Square the random variable X and its
corresponding probability P(X = x).
Step 3. Subtract the square of the expected value of X from the result in Step 2.
Step 4: To get the standard deviation, get the square root of the result in Step 3.
______________________________________________________________________________
Independent Activity 1
1. You are taking an SAT test. If you get the question right, you gain one point, but if you get the
question wrong, you lose ¼ of a point. You have no idea what the correct answer is and
randomly take a guess from the 5 choices given. What is the expected value for the number of
points you get?
2. On the next SAT test question, you confidently eliminate 2 of the choices and randomly guess
from the 3 remaining options. What is the expected value for the number of points you get?
Number on ball, x 0 2 4 6 8
Probability, P(X = x) 1 1 1 1 1
= 0.2
5 5 5 5 5
3. What is the expected value of X.
Example 3:
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Solution:
The experiment is to observe whether the customer survives the upcoming year. The
probabilities associated with the two sample points,
0.999 is obtained by subtracting the probability that the customer dies from 1. That is,
1 – 0.001 = 0.999
The random variable we are interested in is the gain X, which we can assume the values shown
in the following table,
So that,
E( X)=(29,000) ( 0.999 ) +(−71,000) ( 0.001 )
In other words, if the company were to sell a very large number of one-year ₱100,000 policies
to customers possessing characteristics described above, it will net ₱28,900 per sale in the next
year on the average.
Question:
Answer:
Example 2 illustrates that the expected value of the random variable is ₱28,900, but x will equal
either ₱29,000 or - ₱71,000 each time the experiment is performed (a policy is sold and a year
elapses). The expected value is a measure of central tendency – in this case represents the average
over a very large number of one-year policies – that is not a possible value of x.
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Independent Activity 2
A marketing manager is also working in an insurance company and he sells a ₱130,000 one-year
term insurance policy at an annual premium of ₱50,000. Actuarial tables show that the
probability of death during the next year for his customer whose age, sex, health, etc. is 0.018.
1. What is the expected gain (amount of money made by the company) for a policy of this type?
What’s New
The Expected Value of a Function of a Random Variable
The expected value of a function of a random variable can be computed as follows: let g(X) be
x x1 x2 … x3
f (x)=P ( X=x ) f (x 1) f ( x 2) … f (x 3)
The Expected Value of g(X), a function of the discrete random variable X is,
n
E( g (X ))=∑ g(x i) ∙ f (x i)
i=1
The function g(X) could be X 2 , 3 X 4 or any functions. As we will see shortly, this is very useful in
computing the expected value of the special function g( X)=500+1,500 X .
Example 4
A used car dealer finds that in any day, the probability of selling no car is 0.4, one car is 0.2, two
cars is 0.15, three cars is 0.10, four cars is 0.08, five cars is 0.06, and six cars is 0.01. Let X =
number of cars sold and let Y = g(X) = 500 + 1,500X representing the salesman’s daily earning.
Find the salesman’s expected daily earnings.
Solution:
Tabular Representation:
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Graphical Representation:
E ( Y )=E ( g ( X ) )
Interpretation:
In this case of a linear function of a random variable, as in example 3, there is a possible
simplification oof our calculation of the mean of g(X). The simplified formula of the expected
value of a linear function of a random variable is as follows:
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Alternative Method (B):
E ( Y )=E ( g ( X ) )=E(500+1,500 X)
¿ 500+1,500 E ( X )
We need to solve for E(X), using the table below
E( g (X ))=500+1,500(1.48)
E ( g ( X ) ) =2,720
Hence, the expected values is the same as what we have obtained using the formula
n
E( g (X ))=∑ g(x i) ∙ f (x i)which is ₱2,720 per day.
i=1
What’s More
A racing motorcycle dealer finds that in any day, the probability of selling no racing motorcycle
is 0.4, one racing motorcycle is 0.25, two racing motorcycles is 0.07, three racing motorcycles is
0.07, four racing motorcycles is 0.07, five racing motorcycles is 0.06, six racing motorcycles is
0.055 and seven racing motorcycles is 0.025. Let X = number of racing motorcycles sold and let
Y = g(X) = 700 + 3,600X representing the salesman’s daily earning. Find the salesman’s expected
daily earnings using,
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3. Which method is more practical to use. Why? (5 points)
4. In the game of “Craps”, a pair of dice are rolled. You can bet ₱1 that the sum of the dice will
be 2 (“snake eyes”). The probability of winning is 1/36. If you win, the profit is ₱30. What is the
expected value of your profit?
X 30 - 1
P(X 1 ?
) 36
A. ₱1.22 B. ₱1.01 C. ₱0.14 D. ₱2.27
5. You are considering investing ₱10,000 into a start-up company. You estimate that you have a
0.25 probability of a ₱20,000 loss, a 0.20 probability of a ₱10,000 profit, a 0.15 probability of a
₱50,000 profit, and a 0.40 probability of breaking even (no profit). What is the expected value
of the profit?
X 10,000 50,000 0 - 20,000
P(X 0.20 0.15 0.40 0.25
)
A. ₱5,700 B. ₱5,100 C. ₱3,790 D. ₱4,500
1. The Mean for a discrete random variable, denoted by μ, may be computed similarly with
the way a weighted average for frequency distribution is computed, i.e., you take the
summation of all the products of a particular value or outcome x i and its corresponding
probability pi.
2. The variance and standard deviation are measures of variability, which means that they
describe the degree of homogeneity or heterogeneity of a given set of data.
3. Mostly, the mean is not enough to describe a random variable because there are instances
when two probability distributions have the same mean value but are entirely different.
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5. The expected value is a measure of central tendency represents the average over a very
large number of one-year policies. It is not necessary that the expected value is also a
possible value of x.
6. For a discrete random variable X with values x 1 , x 2 , x 3 , ...and corresponding probabilities P(X
= x), the expected value of X is computed as μ= E(X )=∑ x ∙ P( X=x )
all x
7. For a discrete random variable X with values x 1 , x 2 , x 3 , ... , which occur with probabilities P(X
= x), the variance of X is calculated as follows: σ 2=V ( X )=E [ ( x−μ )2 ] ∙ P( X=x ).
Instruction:
You work as a game engineer in an amusement park. The manager of the park tasked you to
design a new game of chance involving roulette, cards, or dice. The manager specifically details
the project to minimize the expected value of the gain so that the amusement park will get as
much profit as possible. You are tasked to present to the manager next week the mechanics of
the game including the computation for the expected value of the gain. Your work will be
approved if it conforms to the following standards:
1. Creativity
2. Originality
3. Accuracy of Computation
4. Clarity of Presentation
5. And Entertainment Appeal of the Game
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Hint: you can create your own user-defined roulette. Just like in the right image.
Assessment (Pre-Test)
Direction: Read and analyze each problem carefully. Write the letter of the correct answer only.
1. An insurance company sells a one-year term life insurance policy to a 75-year-old woman.
The woman pays a premium of ₱750. If she dies within 1 year, the insurance company will pay
₱25,000 to her beneficiary. According to the 2021 Social Security Actuarial Life Table, the
probability that a 75-year-old woman will be alive in 1 year is 0.9746. What is the expected
value of the insurance company’s profit on the policy?
A. ₱121 B. ₱210 C. ₱115 D. ₱119
2. A company makes electronic gadgets. One out of every 50 gadgets are faulty, but the
company doesn't know which ones are faulty until a buyer complains. Suppose the company
makes a ₱3 profit on the sale of any working gadget, but suffers a loss of ₱80 for every faulty
gadget because they have to repair the unit. What is the expected gain?
3. A local club plans to invest ₱10, 000 to host a baseball game. They expect to sell tickets
worth ₱15,000. But if it rains on the day of game, they won't sell any tickets and the club will
lose all the money invested. If the weather forecast for the day of game is 20% possibility of
rain, what is the expected gain?
5. In a board game, players take turns spinning a wheel with 4 spaces and values of ₱100, ₱300,
₱400, ₱800. The probability of landing on ₱100 is 4/9. The probability of landing on ₱300 is 2/9.
The probability of landing on ₱400 is 2/9. The probability of landing on ₱800 is 1/9. What is the
expected value of the wheel once?
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6. What is the expected value of the spinning wheel below once?
7. In a basketball, you can earn 3 points for a shot and 1 point for
a free throw. If Sam’s probability of getting a 3-point shot is 4/10 and 8/10 for a free throw,
what is his expected value for the game? Refer to the table below.
X 3 1
P(X) 4 6
10 10
X 50,000 - 20,000
P 0.75 0.25
A. ₱ 42,600 B. ₱32,500 C. ₱33,560 D. None of These
11. You draw one card from a standard deck of playing cards. If you pick a heart, you will win
₱10. If you pick a face card, which is not a heart, you win ₱8. If you pick any other card, you lose
₱6. What is the expected value of the game?
X 10 8 - 6
P(X) 13 9 30
52 52 52
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A. 0.4231 B. 0.5961 C. 2224 D. 0.3572
12. The world-famous gambler from Cebu, Leopoldo Sentosa, proposes the following game of
chance. You roll a fair die. If you roll a 1, then Leopoldo Sentosa pays you ₱25. If you roll a 2,
Leopoldo Sentosa pays you ₱5. If you roll a 3, you win nothing. If you roll a 4 or a 5, you must
pay Leopoldo Sentosa ₱10, and if you roll a 6, you must pay Leopoldo Sentosa ₱15. What is the
expected value of the game?
X 25 5 0 - 10 - 15
P(X) 1 1 1 2 1
6 6 6 6 6
0.4
0.2
0.15
0.1 0.08
0.06
0.01
0 1 2 3 4 5 6
And the expected value of a function of a random variable is E( g ( X ))=200+900(E ( X )). What
is the value of E( g (X ))?
A. 3494 B. 3571 C. 4522 D. None of These
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References:
Reston, Enriqueta D., Argenal, Rene N., Baterna, Margie L., SEEING THE WORLD THROUGH STATISTICS AND
PROBABILITY, First Edition, VERBUM BOOKS; 2017. Pages 9-18.
Canlapan, Raymond B., STATISTICS AND PROBABILITY, First Edition, DIWA LEARNING SYSTEMS INC;2016. Pages 18-
36.
Online Sources:
https://www.nagwa.com/en/worksheets/130127160682
MERLY J. OMAMBAC
Education Program Supervisor in LRMDS
(Language Evaluator/Reviewer)
BENIGNO S. GONZAGA
Division Illustrator (Designate)
(Lay-Out Artist/Evaluator)
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