Question-1

The results of a recent survey indicate that the average new car
costs Rs. 2,30,000 with a standard deviation of Rs.35,000.
Assume the price of cars approximates a normal curve.
(a) If someone bought a car for Rs.3,20,000, what proportion of
cars cost an equal amount or more than this?
(b) What proportion of cars were sold for an amount between
Rs.1,20,000 and Rs. 3,00,000?
(c) What proportion of cars cost equal to or less than
Rs.2,50,000?

Question-2
Seven thousand runners enter a local marathon in which they
can qualify to enter the New York City Marathon if they
complete the 26-mile plus distance in under 3 hours and 10
minutes. Only 6,350 runners complete the race. If finishing
times are normally distributed with a mean of 3 hours 40
minutes and a standard deviation of 28 minutes, how many
runners qualified? (Note: Your final answer is the number of
runners who qualified, not the proportion of runners who
qualified.)
Question-3 (5.85 and 5.86)
Ansel Fearrington wants to borrow $75,000 from his bank for a
new tractor for his farm. The loan officer doesn’t have the data
specifically on the bank’s history of equipment loans, but he
does tell Ansel that over the years, the bank has received about
1460 loan applications per year and that the probability of
approval was, on average, about 0.8.
(a) Ansel is curious about the average and standard
deviation of the number of loans approved per year. Find
these figures.
(b) Suppose that after careful research the loan officer tells
Ansel the correct figures actually are 1,327 applications
per year with an approval probability per year of 0.77.
What are the mean and standard deviation now?

After some time Ansel learns that the loan officer has been fired
for failing to follow bank lending guidelines. The bank now
announces that all financially sound loan applications will be
approved. Ansel guesses three out of every five applications are
unsound.
(c) If Ansel is right, what is the probability that exactly 6 of
the next 10 applications will be approved?
(d) What is the probability that more than 3 will be
approved?
(e) What is the probability that more than 2 but fewer than 6
will be approved?
Question 4
Suppose that annual return on Disney stock follows a normal
distribution, with mean .12 and standard deviation .30
(a) What is the probability that Disney value will decrease
during the year?
(b) What is the probability that the return on Disney during a
year will be at least 20%?
(c) What is the probability that the return on Disney during a
year will be between -6% and 9%?
(d) There is a 5% chance that the return on Disney during a
year will be less than …………….
(e) There is 95% chance that the return on Disney during a
year will be between ……………. and ………………

Question 5
Let Xi be the price (in dollars) of stock i one year from now. X1
is N(15, 100) and X2 is N(20, 2025). Today I buy three shares of
stock 1 for Rs. 12/share and two shares of stock 2 for Rs. 17 /
share. Assume that X1 and X2 are independent random variables.
(a) Find the mean and variance of the value of my stocks
one year from now.
(b) What is the probability that one year from now I will
have earned at least 30% return on my investment?
(c) If X1 and X2 are not independent what would be the
answers of (a) and (b)?
1. Var X =  [ x  E ( X )] f ( x)dx

2


2. Cov (X, Y) = E{[X – E(X)][Y – E(Y)}}

3. E(cX1) = c E(X1)
4. E(X1) + c = E(X1) + c
5. E(X1 + X2) = E(X1) + E(X2)
6. Var (cX1) = c2 Var(X1)
7. Var (X1 + c) = Var(X1)
8. If X1 and X2 are independent random variables
Var (X1 + X2) = Var(X1) + Var(X2)
9. In general Var (X1 + X2) = Var(X1) + Var(X2) + 2 Cov (X1 + X2)

Cov(aX1 , bX2) = ab cov (X1,X2)