VIGNANA JYOTHI INSTITUTE OF MANAGEMENT

Term: I
Course: Business Statistics and Analytics for Decision Making
Assignment#1: Probability Theory

1. A new pub has opened in town, and you’re considering it as a potential new spot for
cheap wings and a special drink. Before going, you chat with a group of your friends
who have already been. You obtain the following information:

Three of them complained about the quality of the special drink.

Four of them complained about the quality of the wings.
Two of them complained about the quality of the special drink and wings.
Three of them had no complaints.

Answer the following questions:

a. What is the probability that you will enjoy the special drink?
b. What is the probability that you will enjoy the wings?
c. What is the probability that you will dislike either the wings, or the special drink,
or both?
d. What is the probability that you will enjoy both the special drink and the wings?

2. As labour markets become increasingly competitive and individuals seek higher and
higher levels of education, there are signs that these degrees may not be able to buy
independence as easily as they once could. More and more students seem to be
moving home after college. As a result, people are beginning to question whether or
not a degree is necessary to gain independence. A sample of 517 people between the
ages of 25 and 30 were asked whether or not they had a degree and whether or not
they lived at home with their parents. The following table contains their responses:

  Live at home Lives away Total

Has a degree 109 187 296
Does not have a degree 89 135 224
Total 198 322 520

a. Develop a join probability table for these data.

b. Interpret the marginal probabilities
c. If a randomly selected person says they live at home, what is the probability that
they have a degree?
d. If a randomly selected person says they have a degree, what is the probability that
they live at home?
3. A stockbroker knows from past experience that the probability that a client owns
stocks is 0.60 and the probability that a client owns bonds is 0.50. the probability that
the client owns bonds if he/she already owns stocks is 0.55.
a. What is the probability that the client owns both of these securities?
b. Given that the client owns bonds, what is the probability that the client owns
stocks?

4. According to results from Spine Patient Outcomes Research Trial, or SPORT, surgery
for a painful, common back condition resulted in significantly reduced back pain and
better physical function than treatment with drugs and physical therapy. SPORT
followed 803 patients of whom 398 ended up getting surgery. After two years those
who had surgery, 63 % said they had major improvement in their condition, compared
with 29% among those who received nonsurgical treatment.
a. What is the probability that a patient had surgery? What is the probability that a
patient did not have surgery?
b. What is the probability that a patient had surgery and experienced a major
improvement in his or her condition?
c. What is the probability that a patient received non-surgical treatment and
experienced a major improvement in his or her condition?

5. A insurance company has insured 4000 doctors, 8000 teachers and 12000
businessmen. The chances of a doctor, teacher and businessman dying before the age
of 58 is 0.01, 0.03 and 0.05, respectively. If one of the insured people dies before 58,
find the probability that he is a doctor.

6. A radar system is designed such that the probability of detecting the presence of an
aircraft in its range is 98%. However, if no aircraft is present in its range, it still
reports (falsely) that an aircraft is present with a probability of 5%. At any time, the
probability that an aircraft is present within the range of the radar is 7%.

a) What is the probability that no aircraft is present in the range of the radar given that
an aircraft is detected?
b) What is the probability that an aircraft is present in the range of the radar given that
an aircraft is detected?