MARSHALL SCHOOL OF BUSINESS Topics Covered I. Practice Problem Set1 II.

Practice Problem Set1 - Solution

Probability and Random Variables
1) Continuous Random Variable
2) Normal distribution – General Normal and Standard Normal how to calculate
probabilities and Z-scores and find the X – value based on percentile.
3) Sampling distribution –How to calculate probabilities of sample means and Z-scores and
find the X-bar – value based on percentile.
1. The beta coefficients of stocks are a measure of their volatility (or risk) relative to the market as a. Set up the appropriate null and alternative hypothesis to test that the average high-technology
a whole. Stocks with beta coefficients greater than 1 generally bear greater risk (more volatile) than the stock is less risky than the market as a whole. (Just to teach you to setup the hypothesis)
market, whereas stocks with beta coefficients less than 1 are less risky (less volatile) than the overall
market (Sharpe and Alexander, 1990). A random sample of 15 large size high-technology stocks was Ho:   1
selected at the end of 1990, and the mean and standard deviation of the beta coefficients were Ha:  < 1
calculated: x-bar = 1.23, s = 0.37, ( = 5%)
b. Set up the appropriate null and alternative hypothesis to test that the average high-technology
a. Set up the appropriate null and alternative hypothesis to test that the average high-technology stock has a different risk than the market as a whole. (Just to teach you to setup the hypothesis)
stock is less risky than the market as a whole. (Just to teach you to setup the hypothesis)

Probability – Hypothesis
b. Set up the appropriate null and alternative hypothesis to test that the average high-technology Ho:  = 1
Univariate Analysis – Inference stock has a different risk than the market as a whole. (Just to teach you to setup the Ha:   1
hypothesis)
c. Set up the appropriate null and alternative hypothesis to test that the average high-technology

testing
c. Set up the appropriate null and alternative hypothesis to test that the average high-technology
4) Point Estimates and Confidence intervals stock is riskier than the market as a whole. stock is riskier than the market as a whole.
5) Unbiased, Consistent and Efficient Definitions and their Meaning d. Among the three hypothesis you had setup, which is more appropriate hypothesis. (Answer: c) Ho:   1
6) 2-types of CI Now answer the questions below based on the part (C), Ha:  >1

WORKBOOK
i. Mean, sigma known – Z-method e. Calculate the Test-statistic? Is it a t-test statistics or Z-test statistics?
ii. Mean, sigma unknown – t-method f. What is the critical value? d. Among the three hypothesis you had setup, which is more appropriate hypothesis. (Answer: c)
iii. Meaning of CI – Statistical and business g. What is the rejection rule? What is the rejection region? In general the high-technology stocks are more volatile than the rest.
iv. How to change the width of CI – Which ones are practical h. State your conclusion?
GSBA 506 v. Assumptions are they satisfied? i.
j.
Find the p-value.
Did you make any assumptions? Explain.
Now answer the questions below based on the part (C),
7) Sample size calculation (how many)
i. Sample size for Mean, sigma known – Z-method k. What is the Type - I error for this problem? Explain in words. e. Calculate the Test-statistic? Is it a t-test statistics or Z-test statistics?
ii. Relationship between width (margin of error) and sample size, level of l. What is the Type - II error for this problem? Explain in words. This is a t-test, because it is a mean problem and the population standard deviation () is not known.
Dr. Arif Ansari confidence and sigma m. Did you make a Type-I error?
Fall 2015 n. Did you make a Type-II error? f. What is the critical value?
o. If the true beta for high tech stock is ( = 2), Did you make a Type-I error?
x   0 1.23  1
Univariate Analysis – Hypothesis Testing If the true beta for high tech stock is ( = 2), Did you make a Type-II error? t ts    2.407
s 0.37
Now Assume the standard deviation for high–technology stocks is known n 15
8) Hypothesis testing of Mean
( = 0.5), based on this answer the following questions:
tcv,ut  t , df  t0.05,14  1.761
9) 2-types of Hypothesis q. Calculate the Test-statistic? Is it a t-test statistics or Z-test statistics?
i. Mean, sigma known – Z-method r. What is the critical value? g. What is the rejection rule? What is the rejection region?
ii. Mean, sigma unknown – t-method s. What is the rejection rule? What is the rejection region?
iii. How to identify and setup hypothesis, justification, concerns, assumptions t. State your conclusion? Rejection Region:
iv. To calculate critical value, degrees of freedom, test statistics, rejection region, u. Find the p-value.
p-value, and relationship between them. How to calculate p-value for z- Did you make any assumptions? Explain.
method and t-method and how to go from LT to 2T etc. w. Find the p-value for the 2-tail test.
v. Conclusion, what will change the conclusion, difference between evidence Find the p-value for the lower-tail test.
and significant evidence Based on the test-statistics alone will you reject the Null-hypothesis?
vi. How to read JMP printout and how to identify the type to hypothesis testing. z. Calculate a 95% confidence interval for the beta of high technology stocks, what is the 1.761
vii. Type I and II errors, meaning, How to check whether you made a correct relationship between CI and 2-tail hypothesis test? Can you reject the hypothesis that the
This work book contains a set of problems and sample old midterms with answers and it will help you to
prepare for class. Periodically I will solve some problems from this work book in class. Bring this viii.
decision or type I or type II error.
Relationship between confidence intervals and 2-tail hypothesis testing.
average high-technology stock has a different risk than the market as a whole, Explain?
Critical Thinking: Are all high-technology stocks risky? Are they risky now? Select 15 of your favorite
Rejection Rule : tts  tcv  Reject Ho
workbook to class. large size high-technology companies and collect data on their beta and test your hypothesis.

1|P age 2|P age 3|P age

h. State your conclusion?

The test statistics falls in the rejection region implies reject Ho. There is sufficient evidence to conclude
Ho is True (  1) Ho is False ( > 1) (P-value)UT = P(Z > 1.78) = 0.5 – TV(1.78) = 0.5 – 0.4625 = 0.0375
III. (Old) Midterm 1
that the high-technology stocks are more risky (volatile) than the market. Reject Ho Type I error Correct Decision v. Did you make any assumptions? Explain.
Claim ( > 1) Since n < 30, we have to assume the population is normally distributed.
i. Find the p-value. Don’t Reject Ho Correct Decision Type II error Name ________________________________
(P-value)UT = P(t > 2.407) and df = 14. We need the t-table, based on the t-table we find the t-test Claim (  1) w. Find the p-value for the 2-tail test.
statistics falls between 2.145 and 2.624, therefore the p-value for the 1-tail test is between 0.01 and (P-value)2T = 2 (P-value)2T = 2* 0.0375 = 0.075
0.025,
If the true beta for high tech stock is ( = 2), Did you make a Type-II error? x. Find the p-value for the lower-tail test. This exam is closed book. 2 Sheet (4 pages) of formula and definitions is allowed. Write your answers on
0.01 < (P-value)UT < 0.025 (P-value)LT = 1 - (P-value)UT = 1 - 0.0375 = 0.9625 the exam sheets. If you need more space, continue your answer on the back of the page. Make sure you
Since we claim  > 1 and in fact the true beta for high tech stock is  = 2 which is greater than 1, we have all 12 pages!
j. Did you make any assumptions? Explain. made a correct decision, Hence did not commit type II error. y. Based on the test-statistics alone will you reject the Null-hypothesis?
Since n < 30, we have to assume the population is normally distributed. The ZTS is 1.78, It is 1.78 standard deviations from the mean, if the test statistics is large
Now Assume the standard deviation for high–technology stocks is known magnitude and the correct sign we can reject the null.
k. What is the Type - I error for this problem? Explain in words. (The rule of thumb is 3 or more implies reject the null and 1 or less don’t reject the null, in between The exam is 100 minutes (1hr and 40 minutes) long. Total of 100 points. They are not equally
( = 0.5), based on this answer the following questions:
Reject Ho when Ho is True  Conclude Ha when Ho is true. conduct the actual test.) Based on the rule of thumb we cannot say reject the null or not because it all weighted, nor are they of equal difficulty. The number of points each question is worth is printed with
Conclude the High-technology stocks are more risky than the marker when in fact the high technology q. Calculate the Test-statistic? Is it a t-test statistics or Z-test statistics? depends on the significance level. the question. Read the questions carefully. If you are unsure of the interpretation, come ask. Unless
stocks are less risky than the market. (Note: So do the actual test). otherwise stated in a question, you must show your work to obtain full credit.
This is a Z-test, because it is a mean problem and the population standard deviation () is known.
l. What is the Type - II error for this problem? Explain in words. z. Calculate a 95% confidence interval for the beta of high technology stocks, what is the
Don’t Reject Ho when Ho is False  Conclude Ho when Ha is true. relationship between CI and 2-tail hypothesis test? Can you reject the hypothesis that the average high- If you can't complete a problem for any reason, explain what concepts are at issue, and how you would
x  0 1.23  1 technology stock has a different risk than the market as a whole, Explain?
Conclude the High-technology stocks are less risky than the marker when in fact the high technology Z ts    1.7815 solve the problem. It is, in any case, a good idea to explain what your reasoning is in English. If I can't
stocks are more risky than the market.  0.5
tell that you understood what you were doing, I can't give you credit, particularly if you get the wrong
n 15
m. Did you make a Type-I error?  0.5
numerical answer.
Since we reject Ho, either we committed a type I error or made a correct decision. We cannot say it for X  Z  1.23  1.96  (0.9769,1.483)
sure. r. What is the critical value? 2 n 15
Relationship: If the o falls in the confidence interval don’t reject Ho (2-tail test) , If the o does not fall
Ho is True Ho is False Zcv ,ut   Z   Z0.05  1.645 in the confidence interval then reject Ho (2-tail test).
Reject Ho Type I error Correct Decision
s. What is the rejection rule? What is the rejection region? In this case o = 1 and o falls in the confidence interval therefore don’t reject Ho. We cannot say the
Don’t Reject Ho Correct Decision Type II error
high-technology stock has a different risk than the market as whole for a significance level of 5%. GOOD LUCK!
(Note: your conclusion will change with .)
n. Did you make a Type-II error? Rejection Rule : Zts  Zcv  Reject Ho
Since we reject Ho, It is impossible to commit type II error
Rejection Region:
Ho is True Ho is False

Reject Ho Type I error Correct Decision

Don’t Reject Ho Correct Decision Type II error
1.645
o. If the true beta for high tech stock is ( = 2), Did you make a Type-I error? t. State your conclusion?
The test statistics falls in the rejection region implies reject Ho. There is sufficient evidence to conclude
Since we claim  > 1 and in fact the true beta for high tech stock is  = 2 which is greater than 1, we that the high-technology stocks are more risky (volatile) than the market.
made a correct decision. Hence did not commit type I error.
Find the p-value.

4|P age 5|P age 6|P age 7|P age

 Part 1 Question 2 (40 points – 4 points each part)
6. If the sample size is decreased and the standard deviation is increased, which one of the Part 2 - Word Problems
MULTIPLE CHOICE [2 points each] following will be true? LAPD (Los Angeles Police Department) is concerned about the response times to non-
Question 1 (10 points – 2 points each part) emergency calls. The new mayor has requested LAPD to keep the mean response time for non-
1. The problem with relying on a point estimate of a population parameter is that: A. The width of the confidence interval will decrease. emergency calls to less than 20 minutes. LAPD has hired you to study the department response
B. The width of the confidence interval will increase. The following is a list of some of the techniques discussed in this course: times to non-emergency calls and to show the new mayor conclusive evidence that the mean
A. It has no variance C. The width of the confidence interval will not change.  Confidence intervals response time is less than 20 minutes. LAPD selects a significance level of 5%.
B. It is unbiased D. Cannot tell based on the given information.  One sample T test The JMP-IN Printout is given below,
C. It is not efficient E. None of the above  Binomial Distribution (IF YOU CANNOT CALCULATE THE MISSING NUMBERS, ASSUME VALUES AND
D. Its confidence level is zero  Normal Distribution ANSWER THE QUESTIONS.)
E. None of the above 7. A test of hypothesis is always conducted on  Side by side boxplots
Distributions
 One sample Z test Time
2. A significance test of mean gives a p-value of 0.01 and the test statistic as 3.5, from this A. Test statistic
we can conclude, B. Sample statistic For each of the situations described below, select the ONE technique from the preceding list that
C. Critical value you think is MOST applicable. Write your answer in the space provided.
A. It is an upper tail test. D. Parameter
B. It is a two tail test. E. None of the above a. The online broker Fast-Execution claims that the average time to execute the market
C. It is a lower tail test.
order is less than or equal to 5 seconds. You want to show that claim is not true. You
D. Either an upper tail test or a two tail test. 8. If there are two unbiased estimators of a population parameter, the one whose variance is have thirty randomly selected market orders executed by Fast-Execution online broker
E. Either a lower tail test or a two tail test smaller is said to be: and the corresponding time of executions.
3. In a criminal trial, a Type I error is made when: A. Non-Robust Estimator.
B. Relatively Efficient b. The Smart Cash Magazine wants to compare five online brokers and graphically show
A. A guilty defendant is acquitted C. Relatively Inefficient the margin interest rates they have charged for their client accounts over a period of three
B. An innocent person is convicted D. Robust Estimator 5 10 15 20 25 30 35
years. They have the quarterly interest rate for each broker for the past three years.
C. A guilty defendant is convicted E. None of the above
D. An innocent person is acquitted
9. Which of the following statement is false? Quantiles
4. If a study is found to be not statistically significant (Don’t reject Ho) at 5 % significance
c. The online broker Fast-Execution claims that the average time to execute the market
Level, then, A. The t distribution is symmetric around zero 100.0% maximum 30.000
order is less than or equal to 5 seconds. You want to see what proportion of the trades is
B. The t distribution is more spread out than the standard normal distribution 99.5% 30.000
made within 4 seconds assuming the average time of execution is 5 seconds and standard
A. It is significant at 10 % Level C. As the degrees of freedom gets smaller; the t-distribution's dispersion gets smaller 97.5% 30.000
deviation is 1 second. The histogram of execution time provided by the online broker is 90.0% 25.900
B. It is not significant at 10 % Level (tail area gets smaller). mound shaped. 75.0% quartile 23.250
C. May or may not be significant at 10 % Level D. The t distribution is bell shaped 50.0% median 17.500
D. None of the above E. None of the above 25.0% quartile 12.000
d. The chances of Smart Cash Magazine recommending an online broker is 0.6, You want 10.0% 11.000
5. Which of the following is not a characteristic of a binomial experiment? 2.5% 10.000
to find out the probability of Smart Cash Magazine recommending exactly 3 of the 5
10. A new car salesperson knows that he sells cars to one customer out of 20 who enter the online brokers, assuming the chances of recommendation of each broker is the same and 0.5% 10.000
A. There is a sequence of identical trials showroom. The probability that he will sell a car to exactly two of the next three 0.0% minimum 10.000
B. Each trial results in two or more outcomes their selection is independent. Moments
customers is
C. The trials are independent of each other
D. Probability of success p is the same from one trial to another Mean 17.833333
A. 0.9939 Std Dev _________
E. None of the above B. 0.0075 e. You want to find the range of margin interest rate that will be charged by Fast-Execution Std Err Mean 1.068981
C. 0.0071 broker with a high level of confidence. upper 95% Mean 20.019645
D. 0.0851 lower 95% Mean ________
E. 0.1354 N 30

8|P age 9|P age 10 | P a g e 11 | P a g e

Test Mean=value f. Find the 95% confidence interval for the mean. Question 3 (10 points)
IV. (Old) Midterm 2
Hypothesized Value 20
A certain brand of flood lamps has a lifetime that is normally distributed with a mean of 3,750 Part 1 -MULTIPLE CHOICE [2 points each]
Actual Estimate 17.8333
df ______ hours and a standard deviation of 300 hours. 1. If a study is found to be statistically significant (Reject Ho) at 10 % significance Level,
Std Dev ______ then,
a. What proportion of these lamps will last for more than 4,000 hours? [3 points] a) It is significant at 1% Level
t Test b) It is not significant at 1 % Level
Test Statistic ______
Prob > |t| 0.0520
c) May or may not be significant at 1 % Level
Prob > t _______
g. What is the Type - II error for this problem? Explain in words. d) None of the above
Prob < t _______
2. Suppose we wish to test Ho:  = 30 Vs. Ha :  ≠ 30. Which of the following
a. What is the null and alternative hypothesis, State in Mathematical form and in English? possible sample (test statistics) result gives the most evidence to support Ha? (Assume
the sample size and standard deviations are the same.)

a) tts = -3
b) tts = -1
b. What lifetime should the manufacturer advertise for these lamps in order that only c) tts = 0
2% of the lamps will burn out before the advertised lifetime? [3 points] d) tts = 1
b. Calculate the standard deviation of the sample. e) tts = 2
h. Find the p-value for this test.
3. Suppose we wish to test Ho:  = 30 Vs. Ha :  ≠ 30
What will result if we reject Ho?

a) We have made a Type I error

b) We have made a Type II error
c) We have made a correct decision
c. Calculate the Degree of freedom and Test-statistics. d) We did not make Type I error
e) We did not make Type II error

i. Based on the JMP Printout, The new mayor says “there is not sufficient evidence to c. If a sample of 25 lamps is selected, what is the probability that the average lifetime of the 4. Comparing the t – distribution and the standard normal distribution, we can say
conclude the average response time is less than 20 minutes, what must be the reason for sample is more than 3900 hours? [4 points]
mayor’s conclusion? a) They both have the same mean.
b) They both have the same shape
c) The t-distribution is heavier on the tails compared to the standard normal
d. What is the critical value? distribution
d) All of the above
e) None of the above

5. If you want to decrease the width of a confidence interval, which of the following sets of
j. Did you make any assumption? actions will certainly do so?

e. What is the rejection region? And State your conclusion in words. a) Increase the sample size and increase the confidence level.
b) Increase the sample size and decrease the confidence level.
c) Decrease the sample size and increase the confidence level.
d) Decrease the sample size and decrease the confidence level.
e) None of the above

12 | P a g e 13 | P a g e 14 | P a g e 15 | P a g e
 Part 2 Question 2 (20 points – 2 point each part) (IF YOU CANNOT CALCULATE THE MISSING NUMBERS, ASSUME VALUES AND f. Find the 95% confidence interval for the mean.
Word Problems ANSWER THE QUESTIONS.)
Trojan Mega stores sells lot of USC brand items, items that sell well are “Trojan t-shirts”. The
Question 1 (10 points – 2 points each) management at Trojan mega store is concerned about the inventory of t-shirts. If there is too a. What is the null and alternative hypothesis, State in Mathematical form and in English?
much “stock on hand” (inventory) it loses money and if there is too little “stock on hand”
The following is a list of some of the techniques discussed in this course: (inventory) it loses good-will of customers and hence loses money. The Management is
 Confidence interval concerned that the ideal and historical target of average inventory of 100 t-shirt is not
 One sample T test maintained. They selected 30 t-shirts types at random and counted the inventory of each type.
 One sample Z test The obtained the following results. They also selected a significance level of 5%. Based on the
 Normal Distribution JMP-IN printout analyze their problem and provide feedback to them. Their main research g. What is the Type - II error for this problem? Explain in words.
 Side by side Box-plots question is, “has the average inventory of t-shirts changed from 100.”
 Histogram Distributions
t-shirt b. Calculate the standard deviation of the sample.
 Bar Chart

For each of the situations described below, select the ONE technique from the preceding list that
you think is MOST applicable. Write your answer in the space provided.

a) The recent USC “Building on Excellence” capital campaign was successful because of
many people’s donations. The development office wants a range for the average i. Find the p-value for this test.
contributions with high probability associated with the range.
c. Calculate the Degree of freedom and Test-statistics.
b) Marshall School Undergraduate office wants to graphically explore how the distribution
of the SAT scores of undergraduate applicants has changed from year to year. They have
the past 5 year of data. 0 50 100 150

c) Marshall School Undergraduate office wants to find if the current year SAT score Moments
i. The management thinks that the “inventory has declined from the historical average of
average for applicants has exceeded previous year students SAT score average. To do this 100 t-shirts”, Is there any evidence for this statement?
they take a sample of 100 applicants SAT score. Mean 86.5 d. What is the critical value?
Std Dev
Std Err Mean 7.1917497
upper 95% Mean
lower 95% Mean 71.79122
N 30
d) Marshall School Undergraduate office wants to graphically explore the number of
undergraduate Male and Female applicants in year 2006.
Test Mean=value
e. What is the rejection region? And State your conclusion in words.
Hypothesized Value 100
Actual Estimate 86.5 j. What is the sample size, if you need 95% confidence and the margin of error to be
df
e) IBEAR-MBA program is concerned about the salary of graduating students. The Std Dev
less than 10 t-shirts?
historical average is $80,000. They want to find what percentage of the graduates will get
more than $100,000 in salary for year 2007. The historical standard deviation of the t Test
Test Statistic
salary is $10,000. The distribution is exact bell curve. Prob > |t|
Prob > t 0.9647
Prob < t

The JMP-IN Printout is given below,

16 | P a g e 17 | P a g e 18 | P a g e 19 | P a g e

Part 2 - Word Problems

V. (Old) Midterm 3 Part 1 -MULTIPLE CHOICE [4 points each] 6. Which of the following statements is correct? Question 1 (10 points – 2 points each)

1. A test of hypothesis is always conducted on a) An interval estimate describes a range of values that is likely not to include the The following is a list of some of the techniques discussed in this course:
Name ________________________________ actual population parameter  Confidence interval
a) A test statistic b) An interval estimate is an estimate of the range for a sample statistic  One sample T test
USC ID ______________________________ b) A sample statistic c) An interval estimate is an estimate of the range of possible values for a population  One sample Z test
c) A critical value parameter  Normal Distribution
d) A p-value d) All of the above  Side by side Box-plots
e) A Parameter e) None of the above  Histogram
 Central Limit theorem
GSBA 506a 2. Suppose we wish to test Ho:  = 30 Vs. Ha :  ≠ 30. Which of the following 7. If a study is found to be statistically significant (Reject Ho) at 5% significance Level,  Sampling Distribution
possible sample (test statistics) result gives the least evidence to support Ha? (Assume then,  Sample Size
Midterm
the sample size and standard deviations are the same.)
a) It is significant at 1% Level For each of the situations described below, select the ONE technique from the preceding list that
a) tts = -3 b) It is not significant at 1% Level you think is MOST applicable. Write your answer in the space provided.
This exam is closed book. 2 Sheets (4 pages) of formula and definitions is allowed. Write your c) May or may not be significant at 1% Level
b) tts = -1
answers on the exam sheets. If you need more space, continue your answer on the back of the d) None of the above
page. Make sure you have all (8+2) pages!
c) tts = 0 a. The online bank “GREEN BUCKS” claims that their average “daily Money Market
d) tts = 1 Account” interest rate has been more than the industry average by 1%. You want to show
e) tts = 3 8. If you want to decrease the width of a confidence interval, which of the following sets of that claim is not true.
The exam is 90 minutes (1hr and 30 minutes) long. Total of 100 points. They are not equally actions will certainly do so?
weighted, nor are they of equal difficulty. The number of points each question is worth is
3. The t – distribution approaches the normal distribution as the,
printed with the question. Read the questions carefully. If you are unsure of the interpretation, f) Increase the sample size and increase the confidence level.
come ask. Unless otherwise stated in a question, you must show your work to obtain full b. The online bank “GREEN BUCKS” wants a range estimate for the average time spent
a) The population size increases g) Increase the sample size and decrease the confidence level. by customers per login at their website with high probability. The histogram of “time
credit. h) Decrease the sample size and increase the confidence level.
b) The population size decreases spent” provided by the online broker shows a lot of outliers on right side and they take a
c) The degrees of freedom decreases i) Decrease the sample size and decrease the confidence level. random sample of 100 customers.
If you can't complete a problem for any reason, explain what concepts are at issue, and how you e) None of the above
d) The degrees of freedom increases
would solve the problem. It is, in any case, a good idea to explain what your reasoning is in
e) None of the above
English. If I can't tell that you understood what you were doing, I can't give you credit, 9. A sample size of “n”, n ≥ 30 is drawn from a non-Normal distribution with mean  c. The online bank “GREEN BUCKS” calculated the probability for the following scenario,
particularly if you get the wrong numerical answer. and standard deviation  . By Central limit theorem, the distribution of the sample mean
4. In statistical hypothesis testing, in order to determine the p-value, which of the following “the average time spent by customers per login at their website is more than 5 minutes”.
is not needed? is The histogram of “time spent” provided by the online broker shows a lot of outliers on
I will give partial credit if the explanation is appropriate.
right side. They took a sample of 30 customers and calculated the probability and now
a) The level of Significance a) Exactly normal with mean  and variance 2 /n want to justify the probability calculation.
b) Whether the test is lower tail, upper tail or two tail b) Non-normal with mean  and variance 2 /n
c) The Value of the test statistic c) Approximately normal with mean  and variance  2 /n
GOOD LUCK!
d) The type of Distribution ( Z or T ) d) Non-normal with mean  and variance 2 .01 .05.10 .25 .50 .75 .90.95 .99
d. The online bank “GREEN BUCKS” wants to estimate the range of interest rate, they
0.6
e) None of the above want to be accurate within ±0.15% interest rate with 90% confidence; based on past
5. Suppose we wish to test Ho: µ = 0.5 Vs. Ha: µ  0.5 what will result if we don’t 0.5
analysis they know that the standard deviation of interest rate is 0.75%. What is the first
reject Ho? 10. Based on the Normal Quantile plot, we can say, 0.4
step in their analysis?
0.3

a) We have made a Type I error a) The Width is approximately uniformly distributed 0.2

b) We have made a Type II error b) The Width is approximately normally distributed 0.1

c) We have made a correct decision c) The Width is Skewed to the right 0

e. You want to graphically compare the distribution of interest rate of top 5 online banks
d) We did not make Type I error d) The Width is Skewed to the left -3 -2 -1 0 1 2 3 You have information about the interest rates for each of the top 5 online banks.
e) We did not make Type II error Normal Quantile Plot

20 | P a g e 21 | P a g e 22 | P a g e 23 | P a g e
Question 2 (50 points – 5 point each part)
A radio station wants to control the time allocated to unpaid public service commercials. If there t Test f. Find the 95% confidence interval for the mean.
are too many such commercials, the station loses revenue; if there are too few, the station loses
points with the Federal Communications Commission. The target figure is an average of 1.5
Test Statistic
Prob > |t|
______
______ VI. (Old) MIDTERM # 1 - SOLUTION
public service commercial minutes per hour. A sample of 30 hours were selected and analyzed. Prob > t 0.9519 Part 1
Their main research question is, “Is the average time of public service commercial time Prob < t _____
MULTIPLE CHOICE [2 points each]
different from 1.5 minutes per hour (µ ≠ 1.5).”
(IF YOU CANNOT CALCULATE THE MISSING NUMBERS, ASSUME VALUES AND
The Extended Printout is given below, ANSWER THE QUESTIONS.) 1. The problem with relying on a point estimate of a population parameter is that:
g. What is the Type - I error for this problem? Explain in words, if they commit Type-I
Distributions what will its effect on their business?
Time a. What is the null and alternative hypothesis, State in Mathematical form and in English? A. It has no variance
B. It is unbiased
C. It is not efficient
D. Its confidence level is zero  Answer
E. None of the above

2. A significance test of mean gives a p-value of 0.01 and the test statistic as 3.5, from this
j. Find the p-value for this test and lower tail p-value.
we can conclude,
b. Calculate the standard error of time.
A. It is an upper tail test.
B. It is a two tail test.
-1 0 1 2 3 4 5
C. It is a lower tail test.
D. Either an upper tail test or a two tail test.  Answer
E. Either a lower tail test or a two tail test
Quantiles
3. In a criminal trial, a Type I error is made when:
100.0% maximum 4.0000 c. Calculate the Degree of freedom and Test-statistics.
i. How many samples needed to be taken, if you need 99% confidence and the margin of
75.0% quartile 1.9250 A. A guilty defendant is acquitted
error to be less than or equal to 0.1 minutes and the population standard deviation is 0.8
50.0% median 1.1500 B. An innocent person is convicted  Answer
minutes?
25.0% quartile 0.2000 C. A guilty defendant is convicted
0.0% minimum 0.0000 D. An innocent person is acquitted
Moments
4. If a study is found to be not statistically significant (Don’t reject Ho) at 5 % significance
Mean 1.18 Level, then,
Std Dev 1.0196 d. What is the critical value? What is the rejection region?
Std Err Mean ________ A. It is significant at 10 % Level
upper 95% Mean ________ B. It is not significant at 10 % Level
lower 95% Mean 0.7992747 C. May or may not be significant at 10 % Level  Answer
N 30 D. None of the above
j. Find the probability the average time of public service commercial time is more than 1.56
Test Mean=value minutes per hour for a sample of 36 hours, if the mean public service commercial time 5. Which of the following is not a characteristic of a binomial experiment?
is 1.5 minutes per hour and the standard deviation is 1 minute per hour?
Hypothesized Value 1.5
e. State your conclusion in words and your Managerial decision. A. There is a sequence of identical trials
Actual Estimate 1.18
B. Each trial results in two or more outcomes  Answer
df _____
Std Dev ______
C. The trials are independent of each other
D. Probability of success p is the same from one trial to another
E. None of the above

24 | P a g e 25 | P a g e 26 | P a g e 27 | P a g e

6. If the sample size is decreased and the standard deviation is increased, which one of the Question 2 (40 points – 4 points each part) t Test
Test Statistic ______
following will be true? Part 2 Prob > |t| 0.0520
Word Problems LAPD (Los Angeles Police Department) is concerned about the response times to non- Prob > t _______
Prob < t _______
A. The width of the confidence interval will decrease. emergency calls. The new mayor has requested LAPD to keep the mean response time for non-
B. The width of the confidence interval will increase.  Answer Question 1 (10 points – 2 points each part) emergency calls to less than 20 minutes. LAPD has hired you to study the department response a. What is the null and alternative hypothesis, State in Mathematical form and in English?
C. The width of the confidence interval will not change. times to non-emergency calls and to show the new mayor conclusive evidence that the mean
D. Cannot tell based on the given information. The following is a list of some of the techniques discussed in this course: response time is less than 20 minutes. LAPD selects a significance level of 5%.
Ho: µ  20 ↔ The mean response time is more than or equal to 20 minutes
F. None of the above  Confidence intervals The JMP-IN Printout is given below,
Ha: µ < 20 ↔ The mean response time is less than 20 minutes
 One sample T test (IF YOU CANNOT CALCULATE THE MISSING NUMBERS, ASSUME VALUES AND
7. A test of hypothesis is always conducted on  Binomial Distribution ANSWER THE QUESTIONS.) b. Calculate the standard deviation of the sample.
 Normal Distribution
Distributions
A. Test statistic  Side by side boxplots Time s s
B. Sample statistic  One sample Z test Sx    1.068981
C. Critical value n 30
D. Parameter  Answer For each of the situations described below, select the ONE technique from the preceding list that s  5.855
E. None of the above you think is MOST applicable. Write your answer in the space provided.
c. Calculate the Degree of freedom and Test-statistics.
8. If there are two unbiased estimators of a population parameter, the one whose variance is a. The online broker Fast-Execution claims that the average time to execute the market
smaller is said to be: order is less than or equal to 5 seconds. You want to show that claim is not true. You df = n-1 = 30-1 = 29
have thirty randomly selected market orders executed by Fast-Execution online broker
A. Non-Robust Estimator. x   0 17.83  20
and the corresponding time of executions. t ts    2.0269
B. Relatively Efficient  Answer One Sample t-test, Testing a claim and population standard deviation is not s 5.855
C. Relatively Inefficient known. n 30
D. Robust Estimator
E. None of the above 5 10 15 20 25 30 35
b. The Smart Cash Magazine wants to compare five online brokers and graphically show d. What is the critical value?
the margin interest rates they have charged for their client accounts over a period of
9. Which of the following statement is false? three years. They have the quarterly interest rate for each broker for the past three years. Quantiles tcv, Lt  t , df  t0.05, 29  1.699
Side-by-side Boxplot, Quantitative Data for multiple broker.
A. The t distribution is symmetric around zero 100.0% maximum 30.000
99.5% 30.000 e. What is the rejection region? And State your conclusion in words.
B. The t distribution is more spread out than the standard normal distribution c. The online broker Fast-Execution claims that the average time to execute the market 97.5% 30.000
C. As the degrees of freedom gets smaller; the t-distribution's dispersion gets order is less than or equal to 5 seconds. You want to see what proportion of the trades is 90.0% 25.900
smaller (tail area gets smaller).  Answer made within 4 seconds assuming the average time of execution is 5 seconds and standard 75.0% quartile 23.250
TS = -2.0269
50.0% median 17.500
D. The t distribution is bell shaped deviation is 1 second. The histogram of execution time provided by the online broker is 25.0% quartile 12.000
E. None of the above mound shaped. 10.0% 11.000
2.5% 10.000
Normal distribution, that is the best among the given choices or use empirical rule 0.5% 10.000
10. A new car salesperson knows that he sells cars to one customer out of 20 who enter the 0.0% minimum 10.000 CV = -1.699
showroom. The probability that he will sell a car to exactly two of the next three d. The chances of Smart Cash Magazine recommending an online broker is 0.6, You want Moments
customers is to find out the probability of Smart Cash Magazine recommending exactly 3 of the 5 Mean 17.833333
online brokers, assuming the chances of recommendation of each broker is the same and Std Dev _________
Std Err Mean 1.068981 The test statistics falls in the rejection region implies reject Ho. There is sufficient evidence to
A. 0.9939 their selection is independent. upper 95% Mean 20.019645 conclude that the mean response time is less than 20 minutes
B. 0.0075 Binomial – two outcomes and finding the probability. lower 95% Mean ________
C. 0.0071  Answer e. You want to find the range of margin interest rate that will be charged by Fast-Execution N 30
Test Mean=value f. Find the 95% confidence interval for the mean.
D. 0.0851 broker with a high level of confidence.
E. 0.1354 Confidence Interval, Range of values. Hypothesized Value 20
Actual Estimate 17.8333
3 (0.05)2 (1 – 0.05) 3 – 2 df ______
Std Dev ______
2

28 | P a g e 29 | P a g e 30 | P a g e 31 | P a g e
 a) tts = -3  Answer, Most evidence for a two 2-tail test is largest Part 2 -Word Problems
s 5.855 P ( X  x )  0.02
X  t  17.083  t0.025, 29  (15.647,20.019) magnitude test statistic
,df n 30 x b) tts = -1 Question 1 (10 points – 2 points each)
2 P( Z  )  0.02
 c) tts = 0 The following is a list of some of the techniques discussed in this course:
X    z , d) tts = 1  Confidence interval
or Using the printout
e) tts = 2  One sample T test
CI = ( *****, 20.019) , We know the upper limit and sample mean = 17.833, Z  score for 0.02is  2.05
Therefore the lower limit is 17.833 – (20.019-17.833) = 15.647  One sample Z test
x    z 3. Suppose we wish to test Ho:  = 30 Vs. Ha :  ≠ 30  Normal Distribution
g. What is the Type - II error for this problem? Explain in words.   3750  2.05(300)  3135 What will result if we reject Ho?  Side by side Box-plots
Don’t Reject Ho when Ho is False  claim Ho when Ha is true  Histogram
Claim the mean response time is more than or equal to 20 minutes when in fact the
a) We have made a Type I error  Bar Chart
c. If a sample of 25 lamps is selected, what is the probability that the average lifetime of the b) We have made a Type II error For each of the situations described below, select the ONE technique from the preceding list that
mean response time is less than 20 minutes.
sample is more than 3900 hours? [4 points] c) We have made a correct decision you think is MOST applicable. Write your answer in the space provided.
k. Find the p-value for this test. d) We did not make Type I error
e) We did not make Type II error  Answer a) The recent USC “Building on Excellence” capital campaign was successful because of
(p-value) LT = (p-value) 2T / 2 = 0.052/2 = 0.026 (Since the test statistic is negative) many people’s donations. The development office wants a range for the average
 3900  3750 Since we reject Ho, either we committed a type I error or made a correct decision. contributions with high probability associated with the range.
P( x  3900)  P( Z  )  P( Z  2.5) 0.5  0.4938  0.0062 We cannot say it for sure. But we did not make a type II error.
i. Based on the JMP-IN Printout, The new mayor says “there is not sufficient evidence to 300 Answer: Confidence intervals - Range of values.
conclude the average response time is less than 20 minutes, what must be the reason for 25
mayor’s conclusion? b) Marshall School Undergraduate office wants to graphically explore how the distribution
of the SAT scores of undergraduate applicants has changed from year to year. They have
The mayor must have selected a significance level of than 2.6 %, Example, α for him could Ho is True Ho is False the past 5 year of data.
be 1%. VII. (Old) Midterm 2 - SOLUTION
Reject Ho Type I error Correct Decision Answer: Side by side box plots – You want the distribution of SAT scores and
Part 1 -MULTIPLE CHOICE [2 points each] compare it, year to year.
j. Did you make any assumption?
Don’t Correct Decision Type II error
1. If a study is found to be statistically significant (Reject Ho) at 10 % significance Level, c) Marshall School Undergraduate office wants to find if the current year SAT score
No need for any assumptions as n =30, x-bar will be approximately normally distributed. Reject Ho
then, average for applicants has exceeded previous year students SAT score average. To do this
Question 3 (10 points) 4. Comparing the t – distribution and the standard normal distribution, we can say they take a sample of 100 applicants SAT score.
a) It is significant at 1% Level
b) It is not significant at 1 % Level Answer: One sample T test – Testing a claim and population standard deviation is
A certain brand of flood lamps has a lifetime that is normally distributed with a mean of 3,750 a) They both have the same mean. (mean =0)
c) May or may not be significant at 1 % Level  Answer not known.
hours and a standard deviation of 300 hours. b) They both have the same shape (both are bell-shaped)
d) None of the above
c) The t-distribution is heavier on the tails compared to the standard normal
a. What proportion of these lamps will last for more than 4,000 hours? [3 points] distribution. (t-distribution is fatter on tails) d) Marshall School Undergraduate office wants to graphically explore the number of
(If Ho is significant implies p-value < α, therefore p-value < 10%, but that does
d) All of the above  Answer undergraduate Male and Female applicants in year 2006.
not guarantee p-value is less than 1%)
e) None of the above
4000  3750 Answer: Bar chart– You have one number (count) for each gender, male and female
P( X  4000)  P( Z  )  P( Z  0.83) 0.5  0.2967  0.2033 5. If you want to decrease the width of a confidence interval, which of the following sets of applicants
300
actions will certainly do so?
0 α = 0.1 1 e) IBEAR-MBA program is concerned about the salary of graduating students. The
a) Increase the sample size and increase the confidence level. historical average is $80,000. They want to find what percentage of the graduates will get
b. What lifetime should the manufacturer advertise for these lamps in order that only 2% of
p-value b) Increase the sample size and decrease the confidence level.  Answer more than $100,000 in salary for year 2007. The historical standard deviation of the
the lamps will burn out before the advertised lifetime? [3 points]
c) Decrease the sample size and increase the confidence level. salary is $10,000. The distribution is exact bell curve.
2. Suppose we wish to test Ho:  = 30 Vs. Ha :  ≠ 30. Which of the following d) Decrease the sample size and decrease the confidence level.
possible sample (test statistics) result gives the most evidence to support Ha? (Assume e) None of the above Answer: Normal Distribution, as we know the distribution is exact bell curve and we
the sample size and standard deviations are the same.) (n ↑ ↔ W ↓ and CL ↓ ↔ W ↓) are calculating the probability.

32 | P a g e 33 | P a g e 34 | P a g e 35 | P a g e

Question 2 (20 points – 2 point each part)

(IF YOU CANNOT CALCULATE THE MISSING NUMBERS, ASSUME VALUES AND
ANSWER THE QUESTIONS.) s 39.39 VIII. (Old) Midterm 3 Solution
X  t  86.5  t0.025, 29  Part 1 -MULTIPLE CHOICE [4 points each]
Trojan Mega stores sells lot of USC brand items, items that sell well are “Trojan t-shirts”. The a. What is the null and alternative hypothesis, State in Mathematical form and in English?
2
,df n 30
management at Trojan mega store is concerned about the inventory of t-shirts. If there is too Ho: µ = 100 ↔ The average inventory of t-shirts is 100 1. A test of hypothesis is always conducted on
much “stock on hand” (inventory) it loses money and if there is too little “stock on hand” Ha: µ ≠ 100 ↔ The average inventory of t-shirts has changed from 100 39.39
(inventory) it loses good-will of customers and hence loses money. The Management is 86.5  2.045  (71.79,101.21) f) A test statistic
concerned that the ideal and historical target of average inventory of 100 t-shirt is not b. Calculate the standard deviation of the sample. 30 g) A sample statistic
maintained. They selected 30 t-shirts types at random and counted the inventory of each type. h) A critical value
s s
The obtained the following results. They also selected a significance level of 5%. Based on the Sx    7.19174 g. What is the Type - II error for this problem? Explain in words. i) A p-value
JMP-IN printout analyze their problem and provide feedback to them. Their main research n 30 j) A Parameter Answer, we always test the parameter.
question is, “has the average inventory of t-shirts changed from 100.” s  39.39 Don’t Reject Ho when Ho is False  claim Ho when Ha is true
Distributions Claim the average inventory of t-shirts is 100, 2. Suppose we wish to test Ho:  = 30 Vs. Ha :  ≠ 30. Which of the following
t-shirt c. Calculate the Degree of freedom and Test-statistics. when in fact the average inventory of t-shirts is different from 100. possible sample (test statistics) result gives the least evidence to support Ha? (Assume
. the sample size and standard deviations are the same.)
df = n-1 = 30-1 = 29 l. Find the p-value for this test.
a) tts = -3
Note: the p-value for UT is given, so first find p-value for LT. b) tts = -1
x   0 86.5  100 (p-value) LT = 1 - (p-value) UT = 1 – 0.9647 = 0.0353 tts = 0  Answer, 2Tail-Tail test, least evidence by smallest magnitude
t ts    1.877 c)
s 39.39 (p-value) 2T = 2 *(p-value) 1T = 2 * 0.0353 = 0.0706 (You have to take the smaller of the number, which is Zero.
two 1-tail p-values and multiply by 2) d) tts = 1
n 30
The Answer is (p-value) 2T = 0.0706 e) tts = 3
d. What is the critical value?
i. The management thinks that the “inventory has declined from the historical average of 3. The t – distribution approaches the normal distribution as the,
100 t-shirts”, Is there any evidence for this statement?
0 50 100 150 tcv , 2t  t  t0.25, 29  2.045 f) The population size increases
, df Ho: µ ≥ 100 ↔ The average inventory of t-shirts has not declined from 100
2 g) The population size decreases
Ha: µ < 100 ↔ The average inventory of t-shirts has declined from 100 h) The degrees of freedom decreases
Moments e. What is the rejection region? And State your conclusion in words. i) The degrees of freedom increases Answer, when df = ∞, t-distribution will
We have p-value for LT, (p-value) LT = 0.0353 < α = 0.05, Reject Ho, There is sufficient become z-distribution.
Mean 86.5
TS = - 1.877 evidence to conclude that the average inventory of t-shirts has declined from 100 j) None of the above
Std Dev
Std Err Mean 7.1917497
upper 95% Mean Extra information - Note: The conclusion changed because of different type of test and 4. In statistical hypothesis testing, in order to determine the p-value, which of the following
lower 95% Mean 71.79122 change in p-value.
N 30 is not needed?
j. What is the sample size, if you need 95% confidence and the margin of error to be a) The level of Significance  Answer
Test Mean=value less than 10 t-shirts? b) Whether the test is lower tail, upper tail or two tail
CV = -2.045 CV = +2.045
c) The Value of the test statistic
Z 2  2
Hypothesized Value 100
Actual Estimate 86.5 . . d) The type of Distribution ( Z or T )
df
The test statistics does not fall in the rejection region implies don’t reject Ho. There 1.96 2 (39.39) 2
Std Dev
is not sufficient evidence to conclude that the average inventory of t-shirts has n 2
  59.6 5. Suppose we wish to test Ho: µ = 0.5 Vs. Ha: µ  0.5 what will result if we don’t
t Test
changed from 100 E2 10 2 reject Ho?
Test Statistic
Prob > |t|
Prob > t 0.9647 Round up = 60 Samples
Prob < t f. Find the 95% confidence interval for the mean.
a) We have made a Type I error
The JMP-IN Printout is given below, b) We have made a Type II error

36 | P a g e 37 | P a g e 38 | P a g e 39 | P a g e
 c) We have made a correct decision 8. If you want to decrease the width of a confidence interval, which of the following sets of For each of the situations described below, select the ONE technique from the preceding list that Distributions
d) We did not make Type I error  Answer actions will certainly do so? you think is MOST applicable. Write your answer in the space provided. Time
e) We did not make Type II error
j) Increase the sample size and increase the confidence level. e. The online bank “GREEN BUCKS” claims that their average “daily Money Market
Since we don’t reject Ho, either we committed a type II error or made a correct k) Increase the sample size and decrease the confidence level.  Answer Account” interest rate has been more than the industry average by 1%. You want to show
decision. We cannot say it for sure. But we did not make a type I error. l) Decrease the sample size and increase the confidence level. that claim is not true.
m) Decrease the sample size and decrease the confidence level.
n) None of the above Answer: One sample T test (testing the mean and sigma is not given)
Ho is True Ho is False (n ↑ ↔ W ↓ and CL ↓ ↔ W ↓)
f. The online bank “GREEN BUCKS” wants a range estimate for the average time spent
Reject Ho Type I error Correct Decision 9. A sample size of “n”, n ≥ 30 is drawn from a non-Normal distribution with mean  by customers per login at their website with high probability. The histogram of “time
and standard deviation  . By Central limit theorem, the distribution of the sample mean spent” provided by the online broker shows a lot of outliers on right side and they take a -1 0 1 2 3 4 5
Don’t Correct Decision Type II error is random sample of 100 customers.
Reject Ho
a) Exactly normal with mean  and variance 2 /n Answer: Confidence Interval (range for average time)
b) Non normal with mean  and variance 2 /n Quantiles
6. Which of the following statements is correct? c) Approximately normal with mean  and variance  2 /n  Answer g. The online bank “GREEN BUCKS” calculated the probability for the following scenario,
d) Non normal with mean  and variance 2 “the average time spent by customers per login at their website is more than 5 minutes”. 100.0% maximum 4.0000
f) An interval estimate describes a range of values that is likely not to include the actual e) None of the above The histogram of “time spent” provided by the online broker shows a lot of outliers on 75.0% quartile 1.9250
population parameter right side. They took a sample of 30 customers and calculated the probability and now 50.0% median 1.1500
want to justify the probability calculation. 25.0% quartile 0.2000
g) An interval estimate is an estimate of the range for a sample statistic 10. Based on the Normal Quantile plot, we can say,
.01 .05.10 .25 .50 .75 .90.95 .99 0.0% minimum 0.0000
h) An interval estimate is an estimate of the range of possible values for a 0.6
Moments
population parameter Answer, by definition e) The Width is approximately uniformly distributed 0.5 Answer: Central Limit Theorem (to calculate the probability we assume the average
i) All of the above f) The Width is approximately normally 0.4
time is normally distributed and it is justified by Central Limit Theorem.)
Mean 1.18
j) None of the above distributed  Answer 0.3 Std Dev 1.0196
g) The Width is Skewed to the right h. The online bank “GREEN BUCKS” wants to estimate the range of interest rate, they Std Err Mean ________
0.2
h) The Width is Skewed to the left want to be accurate within ±0.15% interest rate with 90% confidence; based on past upper 95% Mean ________
0.1
7. If a study is found to be statistically significant (Reject Ho) at 5% significance Level, (based on histogram and Q-Q plot we can tell it is analysis they know that the standard deviation of interest rate is 0.75%. What is the first lower 95% Mean 0.7992747
then, approximately normally distributed) 0
step in their analysis? N 30
-3 -2 -1 0 1 2 3

Normal Quantile Plot

e) It is significant at 1% Level Answer: Sample Size Test Mean=value
f) It is not significant at 1% Level
Part 2 - Word Problems
g) May or may not be significant at 1% Level  Answer Question 1 (10 points – 2 points each)
i. You want to graphically compare the distribution of interest rate of top 5 online banks Hypothesized Value 1.5
h) None of the above You have information about the interest rates for each of the top 5 online banks. Actual Estimate 1.18
(If Ho is significant implies p-value < α, therefore p-value < 5%, but that does not The following is a list of some of the techniques discussed in this course: df _____
Answer: Side-by-Side Boxplot Std Dev ______
guarantee p-value is less than 1%, it does not mean it is more than 1%, So the answer is  Confidence interval
may or may not be significant at 1% Level.)  One sample T test
Question 2 (50 points – 5 point each part) t Test
 One sample Z test Test Statistic ______
 Normal Distribution A radio station wants to control the time allocated to unpaid public service commercials. If there Prob > |t| ______
 Side by side Box-plots are too many such commercials, the station loses revenue; if there are too few, the station loses Prob > t 0.9519
0 α = 0.05 1  Histogram points with the Federal Communications Commission. The target figure is an average of 1.5 Prob < t _____
 Central Limit theorem public service commercial minutes per hour. A sample of 30 hours were selected and analyzed.
p-value  Sampling Distribution (IF YOU CANNOT CALCULATE THE MISSING NUMBERS, ASSUME VALUES AND
Their main research question is, “Is the average time of public service commercial time ANSWER THE QUESTIONS.)
 Sample Size different from 1.5 minutes per hour (µ ≠ 1.5).”
a. What is the null and alternative hypothesis, State in Mathematical form and in English?
The Extended Printout is given below,

40 | P a g e 41 | P a g e 42 | P a g e 43 | P a g e

j. Find the probability the average time of public service commercial time is more than 1.56 7. If the sample size is increased and the level of confidence is decreased, which one of
Ho: µ = 1.5 ↔ The average time of public service commercial time is equal to 1.5 minutes s 1.019601 minutes per hour for a sample of 36 hours, if the mean public service commercial time the following will be true?
X  t  1.18  t0.025, 29  is 1.5 minutes per hour and the standard deviation is 1 minute per hour?
per hour , df n 30
Ha: µ ≠ 1.5 ↔ The average time of public service commercial time is different from 1.5 2 A. The width of the confidence interval will decrease.  Answer
minutes per hour 1.019601 B. The width of the confidence interval will increase.
1.18  2.045  (0.79927,1.5606)
b. Calculate the standard error of time. 30  x    1.5 C.
D.
The width of the confidence interval will not change.
Cannot tell based on the given information.
G. None of the above
g. What is the Type - I error for this problem? Explain in words, if they commit Type-I
Sx  s / n  1.0196 / 30  0.186153  1
what will its effect on their business?
x    0.16667 8. A robust estimator is one that:
n 36
c. Calculate the Degree of freedom and Test-statistics. Reject Ho when Ho is True  claim Ha when Ho is true A. Is unbiased and symmetrical about zero.
Claim the average time of public service commercial minutes is different from 1.5 1.56  1.5
df = n-1 = 30-1 = 29
P( X 1.56)  P( Z  )  P( Z  0.36) 0.5  0.1406  0.3594 B. Is mound shaped
minutes per hour when in fact the average time of public service commercial 1 C. Is efficient and less spread out
x  0 1.18  1.5 minutes is equal to 1.5 minutes per hour 36 D. Is less sensitive to extreme values is the data set.  Answer
t ts    1.71902
s 1.019601 E. None of the above
If they commit Type I error, they will conclude that the average time of public
n 30
service commercial minutes is different from 1.5 minutes per hour and hence will 9. Suppose we wish to test Ho:  ≤ 30 Vs. Ha:  > 30. Which of the following
d. What is the critical value? What is the rejection region? make changes to the broadcasting time public service commercial when there is no possible sample results give the most evidence to support Ha? (Assume the sample size
need for change, the changes will cost them money and after changes if they under
IX. (Old) Midterm 4 with Solution and standard deviations are the same.)
tcv , 2t  t  t0.025, 29  2.045
broadcast public service commercials they will be in trouble with FCC, if they over
broadcast public service commercials they will lose revenue. A. tts = 1
, df
2 B. tts = -1
m. Find the p-value for this test and lower tail p-value. Part 1 C. tts = 0
D. tts = 3  Answer (Upper Tail test implies larges positive test statistic gives most evidence)
TS = - 1.7902 Note: the p-value for UT is given, so first find p-value for LT. MULTIPLE CHOICE [2 points each] E. tts = - 3
(p-value) LT = 1 - (p-value) UT = 1 – 0.9519 = 0.0481
(p-value) 2T = 2 *(p-value) 1T = 2 * 0.0481 = 0.0962 (You have to take the smaller 5. Which of the following is a valid reason for preferring the median over the mean as a
of the two 1-tail p-values and multiply by 2) measure of centrality when the data are highly skewed? 10. A sample of 5 items is taken from manufacturing process in which 90% are non-
(p-value) 2T = 0.0962 defective (good). What is the probability that exactly 2 in the sample are defective?
A. The mean is numerically more difficult to calculate. (No)
CV = -2.045 CV = +2.045 i. How many samples needed to be taken, if you need 99% confidence and the margin of B. The median will in fact be closer to the true population mean than the sample
error to be less than or equal to 0.1 minutes and the population standard deviation is 0.8 mean will be. (cannot tell) A. 0.0081
minutes? C. The median is not adversely affected by a lack of constant variance. (??) B. 0.0729  Answer
e. State your conclusion in words and your Managerial decision. D. The median will not be unduly influenced by outliers.  Answer C. 0.3281
E. There is no reason to prefer one over the other, because they are usually close to D. None of the above, my answer is __________
The test statistics does not fall in the rejection region implies don’t reject Ho. There is each other. (No)
Z 2  2 P(X=2 defective) =
not sufficient evidence to conclude that the average time of public service commercial 2.576 2 (0.8) 2
minutes different from 1.5 minutes per hour n  2
  424.6897 6. If a study is found to be statistically significant (reject Ho) at 5 % significance Level,
E2 0.12 then, 5 (0.1)2 (1 – 0.1) 5 – 2 = 10 * 0.01* 0.729
2
The Managerial decision will be not to make any changes from the current format Round up = 425 Samples
of broadcasting. A. It is significant at 10 % Level  Answer (p<5% implies p<10%)
B. It is not significant at 10 % Level
n = 425
C. May or may not be significant at 10 % Level
f. Find the 95% confidence interval for the mean.
D. None of the above

44 | P a g e 45 | P a g e 46 | P a g e 47 | P a g e
 Part 2 Answer: Binomial – You want to find the Probability of getting one major gift out of Quantiles
Word Problems 10 alumni. Assuming the probability of gift from each donor is the same and each 100.0% maximum 6.6667
e. What is the rejection region? And State your conclusion in words.
Question 2 (10 points – 2 points each part) alumni giving a gift is independent. 99.5% 6.6667
97.5% 6.6667
90.0% 5.8083 Ts = 2.279952
The following is a list of some of the techniques discussed in this course: 75.0% quartile 4.8667
 Confidence interval t- distribution Question 3 (40 points – 4 points each part) 50.0% median 4.2083
25.0% quartile 3.7292
 Confidence interval z-distribution 10.0% 3.3467
 One sample T test A telemarketing company has established a guideline that states the average time for each 2.5% 3.0000 CV = 1.699
0.5% 3.0000
 One sample Z test completed call should be 4 minutes or less. Recently the operations manager was concerned that 0.0% minimum 3.0000
 Histogram the calls were taking too long. The operations manager wants to see if the calls are exceeding the Moments The test statistics falls in the rejection region implies reject Ho. There is sufficient
 Binomial Distribution 4 minute rule. He randomly selected 30 calls and measured the time taken to complete each call. evidence to conclude that the average call time is exceeding the 4 minutes.
Mean 4.3577778
The significance level selected by the operations manager is 5%. The JMP-IN analysis is given
 Normal Distribution Std Dev 0.8595055
below: Std Err Mean _________ f. What is the p-value for this test?
 Side by side box plots upper 95% Mean 4.6787224
lower 95% Mean _________
N 30
For each of the situations described below, select the ONE technique from the preceding list that Distributions Test Mean=value (p-value) UT = (p-value) 2T / 2 = 0.0301/2 = 0.01505 (Since TS is positive)
you think is MOST applicable. Write your answer in the space provided. Time-Minute

Normal Quantile Plot

3 Hypothesized Value 4
Actual Estimate 4.35778 g. The cost of retraining the employees to reduce the call time is expensive. The CEO of the
a. The recent USC “Building on Excellence” capital campaign was successful because of df ________ company wants to have substantial amount of evidence. So he selects 1% significance
many people’s donations. The development office wants a detailed graphical summary .99
Std Dev 0.85951
2 level. Will the conclusion change for the above problem, if 1% significance level is
showing the distribution of the size of individual contributions. .95 t Test selected? Explain.
Answer: Histogram – You want to look at the graphical summary .90 Test Statistic ________
1 Prob > |t| 0.0301
.75 Prob > t ________ p-value = 0.01505 > α = 0.01, Don’t reject Ho, There is not sufficient evidence to
b. MBA-PM office wants to graphically explore how the distribution of the GMAT scores Prob < t ________ conclude that the average call time is exceeding the 4 minutes.
of MBA-PM applicants has changed from year to year. They have the past 5 year of data. .50 0 Yes the conclusion has changed due to smaller p-value.
Answer: Side by side box plots – You want the distribution of GMAT scores and
compare it year to year. .25
a. What is the null and alternative hypothesis, State in Mathematical form and in English?
-1 h. What is the Type - I error for this problem? Explain in words.
.10
c. USC fund raising office want an interval estimate for the average size of individual Ho: µ ≤ 4 ↔ The average call time is exceeding the 4 minutes.
alumni donations for the next year. They call randomly 50 USC alumni and asked for
.05
Reject Ho when Ho is True  Conclude Ha when Ho is true.
-2 Ha: µ > 4 ↔ The average call time is exceeding the 4 minutes. Conclude that the average call time is exceeding the 4 minutes when in fact the
donations. .01
average call time is not exceeding the 4 minutes.
Answer: Confidence interval t- distribution – You want to find an interval estimate b. Calculate the standard error of the mean.
-3
for the mean and population standard deviation is not known.
s 0.85951 i. Find the 99% confidence interval for the mean, if the population standard deviation is 1.2
Sx    0.156924 minutes.
d. IBEAR-MBA program is concerned whether the average salary of graduating students n 30


has declined from the historical average of $80,000. They called randomly 50 recent
1.2
graduates and collected the highest salary offered by the companies. The historical
standard deviation of the salary is $10,000. c. Calculate the Degree of freedom and Test-statistics.
X  Z  4.35778  2.576  (3.7934,4.922)
Answer: One sample Z test – You want to test a claim for the mean and population 2
,df n 30
standard deviation is known. x   0 4.35778  4
t ts    2.279952
s 0.85951
j. The manager want to minimize the margin of error to 0.1 minutes, how large a sample
n 30 does he need to take to have 95% confidence and , if the population standard deviation is
e. The Alumni office keeps a list of background information on the Marshall Alumni. For a
major gift for a new building they contacted 10 wealthy Marshall Alumni, They wanted 2.5 3 3.5 4 4.5 5 5.5 6 6.5 7 1.2 minutes.
df = n-1 = 30-1 = 29
to know the chances of getting one major gift from one of the ten alumni. (Make
necessary assumptions). d. What is the critical value?

tcv ,UT  t , df  t0.05, 29  1.699

48 | P a g e 49 | P a g e 50 | P a g e 51 | P a g e

Z 2 
2
2
1.962 (1.2 )
n 2
  553.19
E2 0.12
Implies we have to take 554 samples (round up).

Question 4 (15 points)

The life of a nickel-cadmium battery produced by Battery-inc is normally distributed with a

mean of 20 hours and a standard deviation of 9 hours. Battery-inc guarantees the average life of
battery in a case of 25 batteries will exceed 16 hours.

a. Find the mean life time of the 25 batteries and the variance of the sample mean? (5
points)

 x    20

 9
x    1.8
n 25

  (1.8 )  3.24  Variance

2 2
x

b. What is the probability that the mean life time of 25 batteries will exceed 19 hours? (5
points)

19  20
P( X  19)  P( Z  )  P( Z  0.56) 0.5  TV (0.56)  0.71226
9
25

c. Battery-inc wants to design and manufacture new type of batteries. What should be the
mean life of new batteries, if 95% of all the new batteries will last more than 20 hours
and the standard deviation of new batteries will be maintained at 9 hours. (5 point)

P( X  20)  0.95
20  
P( Z  )  0.95
9
X    Z
20    (1.645 * 9)
  20  14.805  34.805
52 | P a g e