Practice Questions for Quiz 1

1. The following bar chart describes the results of a survey concerning the relevance of study to
present job by school.

Focus on the School of Business and Management. What are the mode and the median respectively?

a. Relevant, Neutral

b. Relevant, Relevant

c. Neutral, Relevant

d. Neutral, Neutral

2. Two treatments for kidney stones are compared. The following table summarizes their respective
success rate for treatments involving both small and large kidney stones.

Which of the following statements is false?

a. Treatment A is more effective when used on small stones

b. Treatment A is more effective when used on large stones

c. The success rate of Treatment A must be higher than that of Treatment B when considering
both sizes at the same time
 d. It is possible that the success rate of Treatment A is lower than that of Treatsomment B
when considering both sizes at the same time

3-4 Some graphical descriptions of final examination scores for students of a Statistics course are given
below.

3. Based on the figure above, which statement is false?

a. The score distribution is left skewed

b. The interval length for the histogram is 10

c. There is at least one student who got the perfect score of 100

d. Among all intervals in the histogram, the highest frequency occurs at 70’s

4. Based on the figure above, which statement is correct?

a. There is only one outlying score

b. Removing outlier(s) would increase the mean and SD

c. The mean score is higher than the median score

d. More than 50% of the students scored between 50 and 80

5. To study the relationship between two variables X and Y, data were collected and the scatterplot is
shown below.

Which of the following statements is correct?

a. The two variables are strongly positively associated

b. The two variables are strongly negatively associated

c. The correlation between the two variable is close to 0 but they’re not associated

d. The correlation between the two variable is close to 0 but they’re associated

6. A survey on all the fires in a big city in the last ten years is conducted, and the relationship between
the number of fire engines at each fire and the damages in dollars at each fire is studied. It is found
that the number of fire engines and the amount of damages is strongly positively correlated. Based
on this finding, which statement is correct?

a. More fire engines cause bigger damages

b. Bigger damages cause more fire engines

c. Big damages are typically accompanied with small number of fire engines

d. None of the above

7. A professor gives a quiz with 10 multiple choice questions. After grading the papers, the professor
writes down for each student the number of questions the student got right and the number wrong.
The average number of right answer is 8.13 with SD of 1.1. What are the average and standard
deviation (SD) of the number of wrong answer?

a. 1.87, 1.1

b. 1.87, 8.9

c. 8.13, 1.1

d. 7.13, 8.9

8. A regional manager for a chain of discount tire stores collected data from 30 stores over a 2-year
period (24 months). The data consist of the monthly amount, A, of dollars spent on advertising by
each store, and the dollar amount of sales revenue, R, for each store during the month. The manager
plans to use this data to investigate the association between these two variables. The sample
correlation r= 0.85.

If instead of using dollars as the units for monthly sales revenue, the manager decides to record the
monthly sales revenues in terms of thousands of dollars, and then determine the correlation between A
and R. This change in the units for R will cause which of the following:

a. The sample correlation between the variables will increase from the value previously
computed

b. The sample correlation between the variables will decrease from the value previously
computed.

c. There will be no association between A and R.

d. The sample correlation between the variables will be unchanged from the value previously
computed.

9. If you roll two fair dice, what is the probability that the sum on the two dice equal 6?

a. 3/36

b. 4/36

c. 5/36

d. 6/36
10. Based on the following mosaic plot, which of the following statements is false?

a. P(B) = 0.5

b. P(B|A) = 0.25

c. P(B|Not A) = 0.75

d. Events A and B are independent

11. A student is confused with 3 multiple choices (Single answer) questions that he has no idea about.
Each question has 4 possible answers. On each question he chooses an answer at random, without
regard to how he answered the other questions. The chance that among these questions he gets at
least one question wrong is closest to:

a. 0%

b. 25%

c. 75%

d. 100%
12. The human resource manager at a company has classified applicants according to whether or not
they have any computer skills (Yes or No), and whether or not they have previous work experience
(Yes or No). The results are summarized below:

Which of the following statements is not correct?

a. If an applicant is randomly selected and the applicant has previous work experience, then
the probability that the applicant has computer skills is about 0.57

b. If an applicant is randomly selected, the probability that the applicant has no previous work
experience but has computer skills is about 0.19

c. The data given above indicate that an applicant having computer skills is independent of the
applicant having previous work experience

d. If an applicant is randomly selected, the probability that the applicant either has no
computer skill or has no previous work experience is about 0.76.

13. A fair coin is repeatedly tossed, and the coin lands heads in all the first 5 tosses. Which of the
following statements concerning the 6th toss is true?
a. The coin is less likely to land heads than to land tails.
b. The coin is more likely to land heads than to land tails.
c. The coin is equally likely to land heads as tails.
d. None of the above.

14. Suppose that events A and B both have positive probabilities. Which of the following statements is
false?
a. It is possible that 𝑃(𝐴 ∪ 𝐵) > 𝑃(𝐴) + 𝑃(𝐵)
b. It is possible that 𝑃(𝐴 ∩ 𝐵) = 𝑃(𝐴) × 𝑃(𝐵)
c. It is possible that 𝑃(𝐴 ∪ 𝐵) < 𝑃(𝐴) + 𝑃(𝐵)
d. It is possible that t 𝑃(𝐴 ∩ 𝐵) > 𝑃(𝐴) × 𝑃(𝐵)
15. To promote sales a retailer offers special scratch-off coupons. When the shopper makes a purchase,
the clerk scratches off the covering to reveal the amount of the discount. The discount is 10%, 30%
and 50% of the initial amount. 7/8 of the coupons give the shopper 10% off, 3/32 give 30% off, and
1/32 give 50% off. Suppose that half of the customers purchase a sweater that retails for $100 and
another half purchases a suit that retails for $150. What’s the probability that a randomly selected
customer saves more than $40 by using one of these coupons?
a. 1/8
b. 1/16
c. 5/64
d. 3/32

16. The following plots show the probability distribution functions of four random variables: X, Y, Z and
W.

Based on these plots, which random variable has the largest SD? (You do not need to compute the SD
from the shown probabilities to answer this question)

a. X
b. Y
c. Z
d. W

17. A game involving chance is said to be a fair game if the expected amount won or lost is zero.
Consider the following arcade game. A player pays $1 and chooses a number from 1 to 10. A
spinning wheel then randomly selects a number from 1 to 10. If the numbers match, the player wins
$x (and gets his/her $1 back); otherwise the players loses the $1 entry fee. What value should x be
so that the game is fair?
a. 1
b. 5
c. 9
d. 10
18. A plumber loads his truck each morning with faucets that will be needed for the service calls and
other emergency calls that come in that day. Based on past experience, the number, N, of faucets
required each day has the following distribution: p(0) = 0.05; p(1) = 0.25; p(2) = 0.5; p(3) = 0.15; p(4)
= 0.05. Each faucet requires 25 minutes to install. What is the expected number of minutes the
plumber will spend each day installing faucets?
a. 26.9
b. 50
c. 47.5
d. 9.5

19. Suppose you roll a fair die 6,000 times, what does the Law of Large Numbers say?
a. You should expect to get exactly 1,000 times of Ace (i.e., one point).
b. If after 5,999 flips you have exactly 999 Aces, you should expect the next roll to be an Ace.
c. It is likely that the average points is close to 3.5.
d. The next roll has a 1/6 probability of being Ace.

20-21 A distribution center for a chain of electronics stores receives orders from the various branches.
When an order is received, an amount of time, X, is required to collect the items ordered by the store,
and then an amount of time, Y , is required to load all the items onto a delivery truck. The characteristics
of the two random variables is as follows: E(X) = 1.5 hours, SD(X) = .4 hours; E(Y )=2.2 hours, SD(Y ) = .5
hours. The correlation between X and Y is 𝜌= 0.95.

20. About the time required to fill an order (that is, the time required to have the delivery truck loaded
and ready to go) once an order is received at the distribution center, which is correct?
a. Standard deviation is about 0.9 hours
b. Variance is 0.41 (hours2)
c. It will be on average greater than 4 hours
d. Variance is smaller than 0.41 (hours2)

21. The worker who collects the items on the order makes $70 per hour, and the worker who loads the
items into the truck makes $80 per hour. Which of the following is false about the total cost of filling
an order that is received at the distribution center?
a. The expected total cost is $281
b. The standard deviation is about $67
c. The variance is greater than 2384 ($2)
d. The standard deviation would be bigger if the correlation between X and Y were 0.5
22. An investor buys the stocks of two companies, investing $10,000 in each. The stock of each company
either goes up by 10% after a month with probability 1/2 or drop by 8% with probability 1/2. The
changes in the two stock prices are positively correlated with correlation 0.7. Which of the following
statements is true?
a. The expected value of the investment after one month is larger than $10,100
b. The expected value of the investment after one month is equal to $10,100
c. The expected value of the investment after one month is smaller than $10,100
d. Cannot determine based on the given information

23. Consider two investment plans, A and B. Their annual returns have means 65% and 36%, and
standard deviations 132% and 66% respectively. Suppose one wants to choose one plan and invest
for 20 years. Which of the following statements is correct?
a. Plan A is better because it has a bigger expected return.
b. Plan B is better because it has a smaller standard deviation.
c. Plan A is better because it has a higher Sharpe ratio.
d. Plan B is better because it has a higher volatility-adjusted return.

24. A software can successfully filter a junk email with probability 0.9. A regular email will be mistakenly
filtered by the software with probability 0.1. If 30% of the emails are junk, what is the conditional
probability that a filtered email is junk?
a. 0.34
b. 0.27
c. 0.79
d. 0.95
e. 0.03

25. What percentage of all appliances sent to the repair center are replaced (REP) with a new unit?
a. 50%
b. 31%
c. 0.84%
d. 28%
e. 3%

26. If an appliance at the repair center is selected at random and it needs to be replaced with a new
unit, what is the probability that the appliance has an electrical problem?
a. 28%
b. 40%
c. 97.09%
d. 57.14%
e. 90.32%
27. [Q27-Q28] A regional manager for a chain of discount tire stores collected data from 30 stores over a
2-year period (24 months). The data consist of the monthly amount, X, of dollars spent on
advertising by each store, and the dollar amount of sales revenue, Y, for each store during the
month. The manager plans to use this data to investigate the association between these two
variables. The computations result in a correlation of 𝑟 = .85. Which of the following is an
appropriate interpretation of the correlation of 𝑟 = .85?
a. If X increases by $100, Y will increase by $85.
b. The value for Y will always be 85% of the value for X.
c. An increase in X is always accompanied by an increase in Y.
d. The units on 𝑟 are (dollars of sales revenue) per (dollar spent on advertising).
e. None of above is an appropriate interpretation of the correlation.

28. Instead of using dollars as the units for monthly sales revenue, the manager decides to record the
monthly sales revenues in terms of thousands of dollars, and then determine the correlation
between X and Y. This change in the units for Y will cause which of the following:
A. The correlation between the variables will increase from the value previously computed.
B. The correlation between the variables will decrease from the value previously
computed.
C. There will be no association between X and Y.
D. The correlation between the variables will be unchanged from the value previously
computed.
E. The effect on the correlation cannot be determined without examining the new
scatterplot.
 [Q29-Q30] Boxplots of earnings per share (EPS) data for a sample of retail company stocks and a
sample of energy company stocks are shown below.

29. Which of the following statements is correct?

a. The median EPS is higher for energy stocks compared to retail stocks.
b. The median EPS is higher for retail stocks compared to energy stocks.
c. The IQR for the EPS data is larger for retail stocks than for energy stocks.
d. The EPS data are more variable for retail stocks than for energy stocks.
e. The mean is higher for energy stocks compared to retail stocks.

30. Which of the following statement is true about the distributions of EPS for retail and energy stocks?
a. The distribution of EPS for retail stocks is skewed to the right.
b. The distribution of EPS for energy stocks is symmetric.
c. Both distributions of EPS are symmetric.
d. The distribution of EPS for retail stocks is skewed to the left.
e. The distribution of EPS for energy stocks is skewed to the left.

31. A histogram for a sample of 200 home prices in a rural community shows that the distribution is
nearly bell-shaped except for 4 high outliers that are at least $80,000 greater than the next lowest
price. If it is decided to drop the 4 outliers from the data, which of the following measures would be
impacted the most?
a. Median
b. IQR
c. Mean
d. First quartile
e. Third quartile
32. The median annual income of 20 women is $22,000 and the median annual income of 10 men is
$19,000. What is the median annual income of the combined group of 30 people?
a. $19,000
b. $20,000
c. $21,000
d. $22,000
e. Cannot be determined

33. A company has developed a new computer microprocessor whose average lifetime is unknown. In
order to estimate this average, 300 microprocessors are randomly selected from a large production
line and tested; their average lifetime is found to be 7 years. The estimated average lifetime of 7
years here is a:
a. Parameter
b. Statistics
c. Sample
d. Population
e. None of above

34. An investor buys $10,000 of the stock of a certain company and decides to hold for two months.
Assume that in each of the next two months, the stock either goes up by 10% with probability 1/2 or
drop by 8% with probability 1/2. Also assume that the changes in the two months are independent.
Which of the following statements is true?
a. The expected value of the amount invested after one month is larger than $10,100
b. The expected value of the amount invested after one month is equal to $10,100
c. The expected value of the amount invested after one month is smaller than $10,100
d. The expected value of the amount invested after one month is still $10,100
e. Cannot determine based on the given information

35. Suppose an automobile company has two assembly factories, A and B. The defective rate of cars
produced by factory A is 1.2%, while factory B has 2.4% defective rate. Factory B produces twice as
many cars as factory A. What is the overall defective rate of the company?
a. 1.8%
b. 1.4%
c. 3.6%
d. 2.0%
e. 1.2%

36. Professor gives a quiz with 25 multiple choice questions. After grading the papers, the professor
writes down for each student the number of questions the student got right and the number wrong.
The average number of right answers is 20.2 with an SD of 2.8. What are the average and standard
deviation (SD) of the number of wrong answers?
a. (4.8,2.8)
b. (4.8,22.2)
c. (20.2,2.8)
d. (20.2,22.2)
e. (4.8,13.4)
 [Q37-Q38] An appliance manufacturer maintains a repair center for its customers. Based on past
experience, 70% of all appliances sent in for repair have a mechanical problem (M), and 30% have an
electrical problem (E). If the problem is mechanical, 90% of the appliances can be repaired and returned
to the customer (RR); in the remaining 10% of the cases the appliance must be replaced (REP) with a new
unit. If the problem is electrical, 60% can be repaired and returned to the customer, with the remaining
40% being replaced with a new unit.

37. What percentage of all appliances sent to the repair center are repaired and returned to the
customer (RR)?
a. 50%
b. 81%
c. 90%
d. 18%
e. 63%

38. If an appliance at the repair center is selected at random and it can be repaired and returned to the
customer, what is the probability that the appliance has an mechanical problem?
a. 8.64%
b. 42.86%
c. 33.33%
d. 28.57%
e. 77.78%

39. A study found that as ice cream sales (X) increase, the rate of drowning deaths (Y) increases sharply.
Based on this finding, which statement is correct?
A. Eating ice cream causes drowning.
B. Drowning causes ice cream consumption.
C. Higher ice cream consumption are typically accompanied with lower rate of drowning
deaths.
D. Eating ice cream is not associated with drowning death.
E. None of above is correct.

40. If two variables, X and Y, have a correlation of 0.05, which of the following statement is correct?
A. X and Y are almost independent.
B. X and Y are almost dependent.
C. The correlation between X and Y are very strong.
D. X and Y are weakly associated.
E. None of above is correct.
41. If a scatter plot of Y against X shows a strong positive linear pattern. What will happen to the
correlation if we interchange the axes of the scatter plot, i.e. plot X against Y?
A. Both sign and magnitude of the correlation will change.
B. The sign changes while the magnitude remains the same.
C. The magnitude changes while the sign remains the same.
D. Both sign and magnitude of the correlation will not change.
E. Cannot not be determined.

42. A certain type of tomato seed germinates 90% of the time. A backyard farmer planted 25 seeds.
What is the probability that 24 or fewer germinate?
a. 0.8282
b. 0.8782
c. 0.9282
d. 0.9782
e. 0

43.
X 0 1 2 3

P(X) 0.4 0.3 0.2 0.1

What is the mean and variance of 𝑌, where 𝑌 = 2𝑋 + 1?

a. mean = 1; variance = 1
b. mean = 1; variance = 4
c. mean = 3; variance = 1
d. mean = 3; variance = 4

44. Event 𝐴 and 𝐵 are independent. Then,

a. 𝐴 and 𝐵 are mutually exclusive
b. 𝐴𝑐 and 𝐵 are mutually exclusive
c. 𝐴𝑐 and 𝐵𝑐 are independent
d. 𝑃(𝐴 ꓵ 𝐵) = 0
e. None of the above

45. Consider flipping two fair coins. What is the probability that you can get at least 1 heads, given that
there is a least 1 tails?
a. 1/2
b. 2/3
c. 0
d. 1
e. 1/4
46. The collected data of the marital status of the employee of the company is
a. The ordinal scale
b. The nominal scale
c. The numerical scale
d. None of the above

47. At a primary school, 64 children are raising money for the charity. The average amount raised is $5.
What is the largest possible number of children who could have raised $25 or more?
a. 11
b. 12
c. 13
d. 14
e. 15

48. The Golden State Warriors is in the NBA final, against the Cleveland Cavaliers. You have assigned a
probability of 60% that it will win the championship. Past records indicate that when teams win the
championship, they win all the first three games 30% of the time. When teams lose the series, they
win the first three games 1% of the time The first three game is over; given that the Warriors has
won all the first three game, what is the probability that it will win the series?
a. 0.6
b. 0.8622
c. 0.9783
d. 0.7783
e. 0

49. The Rapid Test is used to determine whether someone has HIV (the virus that causes AIDS). The
false-positive and the false negative rates are 0.027 and 0.080 respectively. A physician has just
received the Rapid Test report that his patient tested positive. Before receiving the result, the
physician assigned his patient to the low-risk group (defined on the basis of several variables) with
only a 0.5% probability of having HIV. What is the probability that the patient actually has HIV?
a. 0.1462
b. 0.2462
c. 0.3462
d. 0.2121
e. 0.3121
50. Which of the following is not an approach to assigning probabilities?
a. Classical approach
b. Subjective approach
c. Relative frequency approach
d. Modern approach
e. All of the above

51. In the United States, voters who are neither Democrat nor Republican are called Independents. It is
believed that 10% of all voters are Independents. A survey asked 25 people to identify themselves as
Democrat, Republican, or Independent. What is the probability that more than one people are
Independent?
a. 0.5288
b. 0.6288
c. 0.7288
d. 0.8288
e. 0.9288

52. The number of pizzas delivered to university students each month is a random variable with the
following probability distribution.
X 0 1 2 3

P(X) 0.1 0.3 0.4 0.2

Find the probability that a student has received delivery of two or more pizzas this month.

a. 0.4
b. 0.2
c. 0.6
d. 0.3
e. 0.1

53. Compute the interquartile range from the data: 5 − 𝑎, 8 − 𝑎, 14 − 𝑎, 6 − 𝑎, 21 − 𝑎, 11 − 𝑎, 9 −

𝑎, 10 − 𝑎, 18 − 𝑎, 2 − 𝑎, where 𝑎 is a constant.
a. 6
b. 7
c. 8
d. 9
e. Cannot be determined
54. Consider rolling two fair dice. What is the probability that the sum of two dice is greater than or
equal to 7?
a. 1/2
b. 21/36
c. 1/3
d. 22/36
e. 1/4

55. Here are two summary of return of the two single stock portfolios (risk free rate= 0.015)
mean variance standard deviation

IBM 0.10 2.00 1.41

Apple 0.20 2.24 1.50

What is the Sharpe ratio of these two portfolio?

a. Sharpe ratio of IBM = 0.04913, Sharpe ratio of Apple = 0.2233

b. Sharpe ratio of IBM = 0.06028, Sharpe ratio of Apple = 0.1233
c. Sharpe ratio of IBM = 0.04913, Sharpe ratio of Apple = 0.1233
d. Sharpe ratio of IBM = 0.06028, Sharpe ratio of Apple = 0.2233
e. Sharpe ratio of IBM = 0.06128, Sharpe ratio of Apple = 0.1233
56. Compare the two histogram below. Which statement is true?

a. The spread of histogram A is smaller than the spread of histogram B.

b. The spread of histogram A is larger than the spread of histogram B.
c. The spread of histogram A is the same as the spread of histogram B.
d. You cannot compare the spreads of these two histogram without the original data.
e. None of the above
57. Data for calories and salt content (milligrams of sodium) in 17 brands of meat hot dog are shown in
the scatter diagram below. According to this diagram, what can you say about the relationship
between calories and sodium?

a. There is a strong positive linear relationship between calories and sodium.

b. There is a strong negative linear relationship between calories and sodium.
c. There is a weak positive linear relationship between calories and sodium.
d. There is a weak negative linear relationship between calories and sodium.
e. There is no association between calories and sodium.

58. The relationship between two numerical variables is graphically displayed by a

a. Scatter plot
b. Histogram
c. Bar chart
d. Pie chart
e. Boxplot
59. Determine the mean, median and standard deviation of the following population:
12 6 22 31 23 13 15 17 21

a. mean =17.78, median =16.5, standard deviation =7.00

b. mean =17.00, median =17, standard deviation =7.00
c. mean =17.78, median =15, standard deviation =6.94
d. mean =17.78, median =17, standard deviation =6.94
e. mean =17.00, median =16.5, standard deviation =7.00

60. The price-earnings ratios of a sample of stocks have a mean value of 13.5 and a standard deviation of
2. If the ratios have a bell shaped distribution, what can we say about the proportion of ratios that
fall between 11.5 and 15.5?
a. The interval contains approximately 60% of the ratios, according to the Empirical Rule
b. The interval contains approximately 68% of the ratios, according to the Empirical Rule
c. The interval contains approximately 64% of the ratios, according to the Empirical Rule
d. The interval contains approximately 95% of the ratios, according to the Empirical Rule
e. The interval contains approximately 70% of the ratios, according to the Empirical Rule

61. A retail wanted to estimate the monthly fixed and variable selling expenses. As a first step, she
collected data form the past 8 months. The total selling expenses ($1,000) and the total sales
($1,000) were recorded and listed below.
Total 20 40 60 50 50 55 60 70
Sales

Selling 14 16 18 17 18 18 18 20
Expenses

Compute the covariance of total sales and selling expenses.

a. 25.2807
b. 25.3807
c. 25.4807
d. 26.1607
e. 26.2807
62. Which of the following is NOT a reason for the need for sampling?
a. It is usually too costly to study the whole population.
b. It is usually too time consuming to look at the whole population.
c. It is sometimes destructive to observe the entire population.
d. It is always more informative to investigate a sample than the entire population.
63. The classification of student class designation (freshman, sophomore, junior, senior) is an
example of
a. A categorical random variable.
b. A discrete random variable.
c. A continuous random variable.
d. A parameter.

[For Question 64 and 65] A sample of 200 students at a Big Ten university was taken after the
midterm to ask them whether they went bar hopping the weekend before the midterm or spent
the weekend studying, and whether they did well or poorly on the midterm. The following table
contains the result:

Did Well on Midterm Did Poorly on Midterm

Studying for Exam 80 20

Went Bar Hopping 30 70

64. Of those who went bar hopping the weekend before the midterm in the sample, ______
percent of them did well on the midterm.
a. 15
b. 27.27
c. 30
d. 55

65. If the sample is a good representation of the population, we can expect ______ percent of
the students in the population to spend the weekend studying and do poorly on the midterm.
a. 10
b. 20
c. 45
d. 50
66. In a right-skewed distribution,
a. the median equals the mean.
b. the median is less than the mean.
c. the median is larger than the mean.
d. none of the above

67. Which of the following statements about the median is not true?
a. It is more affected by extreme values than the mean.
b. It is a measure of central tendency.
c. It is equal to Q2.
d. All statements above are true.

68. In general, which of the following descriptive summary measures cannot be easily
approximated from a boxplot?
a. the variance
b. the range
c. the interquartile range
d. the median

69. In perfectly symmetrical distributions, which of the following is NOT a correct statement?
a. The distance from Q1 to Q2 equals to the distance from Q2 to Q3.
b. The distance from the smallest observation to Q1 is the same as the distance from Q3 to
the largest observation.
c. The distance from the smallest observation to Q2 is the same as the distance from Q2 to
the largest observation.
d. The distance from Q1 to Q3 is half of the distance from the smallest to the largest
observation.

70. The smaller the spread of scores around the mean,

a. the smaller the interquartile range.
b. the smaller the standard deviation.
c. the smaller the coefficient of variation.
d. All of the above
71. If two events are mutually exclusive and collectively exhaustive, what is the probability that
both occur?
a. 0
b. 0.50
c. 1.00
d. Cannot be determined from the information given.

72. If two equally likely events A and B are mutually exclusive, what is the probability that event
A occurs?
a. 0
b. 0.50
c. 1.00
d. Cannot be determined from the information given.

73. If the outcome of event A is not affected by event B, then events A and B are said to be
a. mutually exclusive.
b. independent.
c. collectively exhaustive.
d. none of the above

[For Question 74 and 75] According to a survey of American households, the probability that the
residents own 2 cars if annual household income is over $25,000 is 80%. Of the households
surveyed, 60% had incomes over $25,000 and 70% had 2 cars.
74. The probability that the residents of a household own 2 cars and have an income less than or
equal to $25,000 a year is:
a. 0.12.
b. 0.18.
c. 0.22.
d. 0.48.
75. The probability that the residents do not own 2 cars if annual household income is not over
$25,000 is:
a. 0.12.
b. 0.18.
c. 0.45.
d. 0.70.

76. The portfolio expected return of two investments

a. will be higher when the covariance is zero.
b. will be higher when the covariance is negative.
c. will be higher when the covariance is positive.
d. does not depend on the covariance.

77. A company has 2 machines that produce widgets. An older machine produces 23% defective
widgets, while the new machine produces only 8% defective widgets. In addition, the new
machine produces 3 times as many widgets as the older machine does. What is the probability
that a randomly chosen widget produced by the company is defective?
a. 0.0780
b. 0.1175
c. 0.1560
d. 0.3100

78. You toss a fair coin four times. What is the probability of getting at least one tail?
a. 0.9375
b. 0.0625
c. 0.8750
d. 0.1250
79. The random variable X has the following distribution.

X -2 5 7 8

P(x) 0.59 0.15 0.25 0.01

What is the mean and variance for the probability distribution below?

a. Mean = 1.4, Variance = 17.04

b. Mean = 3.76, Variance = 17.04
c. Mean = 1.4, Variance = 4.86
d. Mean = 3.76, Variance = 4.86

[For Question 81 and 82] Here are two summary of return of the two single stock portfolios (risk
free rate= 0.015)

mean variance standard deviation

IBM 0.10 4.99 2.23

Microsoft 0.12 5.27 2.30

80. What is the Sharpe ratios of these two portfolios?

a. Sharpe ratio of IBM = 0.038; Sharpe ratio of Microsoft = 0.020
b. Sharpe ratio of IBM = 0.097; Sharpe ratio of Microsoft = 0.020
c. Sharpe ratio of IBM = 0.038; Sharpe ratio of Microsoft = 0.046
d. Sharpe ratio of IBM = 0.097; Sharpe ratio of Microsoft = 0.046

81. Given that the covariance of the return of IBM and Microsoft is 0.5, what is the expected
return and standard deviation of a portfolio, which you invest half in IBM and half in
Microsoft?
a. expected return= 0.11, standard deviation= 0.68
b. expected return= 0.14, standard deviation= 1.37
c. expected return= 0.14, standard deviation= 2.68
d. expected return= 0.11, standard deviation= 1.67
82. In order to analyze the strength of a certain product, a sample of size 1000 were selected and tested.
The histogram of the strengths is nearly bell-shaped, with the following summary.

Summary Strength (pounds)

Mean 1180

Median 1175

IQR 108

SD 80

The empirical rule predicts that approximately 68% of the strengths will be in the interval
(a) [1100, 1260] (b) [1020, 1340] (c) [1067, 1284] (d) [1095, 1255]

83. A time series recording the daily closing prices of HSBC stock is shuffled. Which of the following
summaries will change?

(a) Histogram (b) Time series plot (c) Median (d) Mean
84. The following table summarizes the status of 1,000 loans made by a bank. Each loan either ended in
default or was repaid. Loans were divided into large loans (more than $100,000) or small loans.

Repaid Default

Large 40 10

Small 930 20

Suppose it was found that among the large loans five of them originally categorized as ‘default’ were
repaid later. Thus it is necessary to correct the table. Compare the association between the loan size and
payment outcome before and after the correction.

(a) The association is stronger before the correction.

(b) The association is stronger after the correction.

(c) About the same.

(d) Cannot be determined.

85. Which scatterplot shows a strong negative association?

(a) (b) (c) (d)

86. A quality control manager at a plant has been monitoring the amount of money X spent each week
on quality control efforts, and the percentage of defective products P that are returned from each
week’s production. The correlation coefficient between the two variables is found to be -0.95. Which
of the following statements is appropriate for the manager to conclude?

(a) An increase in the amount of money spent on quality control efforts will cause a decrease in the
percentage of defective products returned.

(b) An increase in the amount of money spent on quality control efforts is always accompanied with a
decrease in the percentage of defective products returned from that week’s production.

(c) There is strong positive association between the amount of money spent on quality control efforts
and the percentage of defective products returned from each week’s production.

(d) None of the above.

Solution:
(a) is wrong since correlation does not imply causation.

(b) is wrong since the correlation is just -0.95 (greater than -1), we cannot say that they are “always”
accompanied.

(c) is wrong since they have negative association.

87. In monitoring the manufacturing of M&M candies, the mean and standard deviation of the weight
are obtained, both in grams. Now if the measuring unit is changed to ounces (1 gram = 0.035
ounces), which of the following summary statistic will remain unchanged?

(a) Mean (b) SD (c) Coefficient of variation (d) IQR

88. Two events are impossible to have the following relationship:

a) Independent and mutually exclusive.

b) Dependent and mutually exclusive.
c) Independent and Not mutually exclusive.
d) Dependent and Not mutually exclusive

Solution:
Note that mutually exclusive implies dependence since if we know one event happens, then the mutually
excluded one must not happen.

89. The probability that a new advertising campaign will increase sales is assessed as being 0.80. The
probability that the cost of developing the new ad campaign can be kept within the original budget
allocation is 0.40. Assume that the two events are independent. The probability that the cost is not
kept within budget or the campaign will not increase sales is:

a) 0.12 b) 0.32 c) 0.68 d) 0.88

90. Which one is false?

A. A random variable can always be thought of as the result of a random selection
from a population.
B. The probability distribution of a random variable can be viewed as a population
distribution.
C. The expected value of a random variable corresponds to the mean of a population.
D. Because the relation between the random variable with a random selection, the
variance of a random variable can be calculated in the same way as the
sample variance.
91. If the covariance between the prices of two investments is 150,000$2, which of the following is false?

(a) The prices of the two investments are measured in $.

(b) We know that the correlation is positive.

(c) Because the covariance is quite large, the correlation must be very high.

(d) If we measure the investment in $1,000s, then the covariance is 0.15.

92. A students budgets $600 weekly for gas and a few quick meals off campus. Let X denote the amount
spent for gas and Y the amount spent for quick meals. Assume this student is very disciplined and
sticks to the budget, spending exactly $600 on these two things each week. Which of the following
statement is true?

a) X and Y are independent

b) X and Y are positively correlated

c) X and Y are dependent buy not correlated

d) X and Y are negatively correlated

93. The weekly salary paid to employees of a small company that supplies part-time laborers averages
$800 with a standard deviation of $500. Suppose the weekly salaries are normally distributed. If
every employee receives a year-end bonus that adds $100 to the paycheck in the final week, how
does this change the normal model for that week?

(a) It shifts the mean from $800 to $900 and the SD from $500 to $600.

(b) It shifts the mean from $800 to $900.

(c) It does not cause any change to the normal model.

(d) It shifts the SD from $500 to $600.

94. An investment is expected to grow during the year by 11% with SD 23%. Assume a normal model for
the change in value. Find the value at risk (VaR) for an investment of $100,000 at 2%. (That is, find
out how low the value of this investment could be if the worst 2% of outcomes are ruled out.)

(a) 77240 (b) -55240 (c) 51500 (d) 44760 (e) 36150
95. A hurricane bond pays the holder a face amount, say $1 million, if the loss caused by hurricane in a
certain country is more $5 million. Suppose that the chance for such a storm is 10% per year and the
loss caused follows a normal distribution with mean $6 million and SD $3 million. If a financial firm
sells these bonds for $62,000, what is the chance that the firm loses money if it only sells one of
these bonds?

(a) 0.013 (b) 0.063 (c) 0.100 (d) 0.129

96. A normal quantile plot that concentrates along the diagonal of the plot indicates that

(a) a normal model is appropriate

(b) a normal model is not appropriate

(c) there is skewness in the data

(d) there are outliers in the data

97. A normal quantile plot of HSBC stock daily closing price from 2008 to 2010 is as follows.
Which of the following is false?

A. Overall the distribution does not look like normal.

B. The distribution is bimodal.
C. The center part of distribution is close to normal distribution.
D. Both tails show moderate deviation from the normal distribution.

98. If you roll two fair dice, what is the probability that the sum on the two dice equals 6?
a. 3/36
b. 4/36
c. 5/36
d. 6/36
e. 18/26