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Applied Statistical Methodology for research business

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1. Binomial distribution

It was introduced in a journal that binomial distribution is a form of probability

distribution in which it summarizes the likelihood that a particular amount will get one of two

independent values under a condition or set of parameters or assumptions. There are such

assumptions on the binomial distribution that there is only one outcome for each trial and

therefore each of these trials is mutually exclusive or independent of one other. In statistics, the

binomial distribution is one of the commonest discrete distributions different from a continuous

distribution, like the normal distribution. The reason why the idea of the binomial distribution is

opposed to the normal distribution is that it counts only two states and this represents a 1 (for

success), or a 0 (for failure) that is given on the trials represented in the data. Moreover, the

binomial distribution represents the x and its probability for success in the trials (n), given also a

success probability (p) for each trial (Barone, 2021).

Symmetry Property of Binomial distribution

It has been discussed in an article released by Stattrek (2022) that the mean of the

binomial distribution is (p) and its standard deviation is represented in sqr (p(1-p)/n). The shape

of a binomial distribution is said to be symmetrical when p=0.5 or when the (n) is large.

Finding the Mean, the Variance, and the Standard Deviation of this Distribution

To determine the mean of the binomial distribution, it is important to understand that the

mean of the distribution (μx) is equal to n*P, then the variance (σ2x) is n*P*(1-P), and the

standard deviation (σx) is computed by sqrt [n *P * ( 1 - P ) ] (StatsDirect, 2021).

Simple Example of Binomial Distribution

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According to a study by the Corporate Finance Institute (2020), there are several types of

binomial distribution trials. The first is fixed trials, such as coin flips, where the number of times

a trial has been performed is recorded since the beginning. If a coin is flipped ten times, each flip

of the coin is referred to as a trial. Second, there are independent trials, such as tossing a coin or

rolling a die, where the first event, in the case of tossing the coin, is considered to be independent

of the subsequent events. Third, the fixed chance of success, as demonstrated by the fact that

when a person tosses a coin, the likelihood of receiving a head is approximately 0.5, and if 50

trials are conducted, the expected value of the number of heads is 25. (50x0.5).

2. Exercise 66

Problem

a. Assume that 1% of the shipment is defective. Compute the probability that no items in the

sample are defective.

(Probability of Defective) P (D) = 1% = 0.01%

(Probability of Non-Defective) P (D’) = 1-1% = 0.99

P (A) = 5co (0.01)0(0.99)5 + 5c1(0.01)1(0.99)4

(0 defective) (1 defective)

P (A) = 0.959 = 95.9%

b. Assume that 1% of the shipment is defective. Compute the probability that exactly one item

in the sample is defective.

(Probability of Defective) P (D) = 1% = 0.01%

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(Probability of Non-Defective) P (D’) = 1-1% = 0.99

P (A) = 5co (0.01)0(0.99)5 + 5c1(0.01)1(0.99)4

(0 defective) (1 defective)

P (A) = 0.998 = 99.8%

c. What is the probability of observing one or more defective items in the sample if 1% of the

shipment is defective?

(Probability of Defective) P (D) = 1% = 0.01%

(Probability of Non-Defective) P (D’) = 1-1% = 0.99

P (A) = 5co (0.01)0(0.99)5 + 5c1(0.01)1(0.99)4 + 5c2(0.01)2(0.99)3

(0 defective) (1 defective) (2 defective)

P (A) = 0.998 = 99.8% (1 defective)

P (A) = 1,017 = 101.7% (2 defectives)

3.

The objective of the Sign Nonparametric Test and Forming of the Hypothesis

In the first type of sign test, the one sample, the hypothesis is made through the data

sample of the problem being shown which targets the + and - signs as the values of the random

variables having equal size. However, on the paired sample, this is explained as an alternative to

the paired t-test and this uses the + and - signs in the paired sample tests or the before-after study
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presented. The null hypothesis is being made up so that the signs of + and - are equal in size or

the population means are equal to the given sample mean (Statistics Solution, 2021).

Testing of the Hypothesis using Binomial Distribution for both Non-Directional and

Directional Cases

In the journal released by Zach (2021), it has been explained that the directional

hypothesis is also known as an alternative hypothesis that contains less than (represented by the

sign “<”) or those greater than (represented by the sign “>”). however, when it comes to the non-

directional hypothesis, this is an alternative hypothesis containing the not equal (represented by

the sign “≠”).

4.

a. Ho = (the median price in the metropolitan area is $200,000)

Ha= (the median price in the metropolitan area is not $200,000)

The hypothesis is made to contrast both the thought that the metropolitan area is

$200,000 and the other view is not in accordance with the question given. To

formulate the test, the t-test is used to accommodate the data given as well as the

groups being divided into three to test the hypothesis formed.

Test Statistic: t-test

Since this is a t-test and there are multiple samples, the groups are divided into

three parts which are groups 1& 2, groups 1&3, and groups 2 & 3. Moreover, the alpha which is

0.05 will also be divided into 3 since the groups for the t-test are subdivided into 3, the alpha is

now 0.0166.
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b. Test the hypothesis that the median price in the metropolitan area is more than $200,000

ȳ 1=13, ȳ 2=1, ȳ 3 =27

Above are the values of the mean of every number of homes given in the table.

The symbol x̄ represents the mean of every data in each column provided.

Ho = (the median price in the metropolitan area is more than $200,000)

Ha= (the median price in the metropolitan area is not more than $200,000)

The hypothesis is made to contrast both the thought that the metropolitan area is more

than $200,000 and the other view is not in accordance with the question given. To

formulate the test, the t-test is used to accommodate the data given as well as the groups

being divided into three to test the hypothesis formed.

Test Statistic: t-test

Since this is a t-test and there are multiple samples, the groups are divided into

three parts which are groups 1& 2, groups 1&3, and groups 2 & 3. Moreover, the alpha which is

0.05 will also be divided into 3 since the groups for the t-test are subdivided into 3, the alpha is

now 0.0166.

5. Regression Analysis

a) The regression model has been widely used in several fields. It is of the form;

y=mx+b+ ε ;

Where y is the dependent variable, x is the independent variable, m is the slope

coefficient, b is the y-intercept and ε is the random error term.

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The regression equation is currently used to relate the annual rate of return of a security

and the market rate of return. To test the model, Walmart security data was used and S&P was

used as a market indicator. The following hypothesis was tested;

b.)

c.)

d.)
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H0: There is no significant relationship between the market rate of return and the annual rate of

security.

H1: There is a significant relationship between the market rate of return and the annual rate of

security.

e)

scatterplot with regression line

security rate of return(walmart)

0.7
0.6
0.5
0.4
0.3
f(x) = 0.692347365824118 x 0.2
+ 0.0252606057837984
0.1
0
-0.5 -0.4 -0.3 -0.2 -0.1 -0.1 0 0.1 0.2 0.3 0.4
-0.2
-0.3
market rate of return(Dow jones)

From the scatterplot above, as the annual rate of return of the market increases, the annual rate of

return of the security increases as well, and vice versa.

Regression Statistics

0.6521

Multiple R 89

0.4253

R Square 5

Adjusted R 0.3934

Square 25

Standard Error 0.1370

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Observations 20

There exists a positive correlation between the market and security rate of return, r(0.65). The

regression model explains 39.34% of the variability in the data.

ANOVA

Significan

  df SS MS F ce F

Regressi 0.2502 13.3234

on 1 0.25021 1 1 0.001831

0.33803 0.0187

Residual 18 5 8

0.58824

Total 19 5      

From the ANOVA table above, F(1,18)=13.32,p=0.0018, implies that the regression model is

significant since the p-value is less than 0.05.

Coefficient Standar Lower Upper

  s d Error t Stat P-value 95% 95%

0.03284 0.76913 0.45178 0.09426

Intercept 0.025261 3 4 9 -0.04374 1

0.18967 3.65012 0.00183 0.29384 1.09084

X Variable 1 0.692347 8 5 1 9 5
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The coefficient of X is statistically significant since the p-value (0.001) is less than 0.05. The y-

intercept is not significant since the p-value (0.45) is greater than 0.05. Therefore, the regression

model is as follows;

Y=0.692347X

Where y is the annual rate of return for Walmart security and x is the annual rate of return for SP

500 industrial market.

Normal Probability Plot

0.8
0.6
0.4
0.2
Y

0
-0.2 0 20 40 60 80 100 120
-0.4
Sample Percentile

The normal probability plot above indicates that residuals are normally distributed

f.)

The regression model relating the two variables is valid. The market rate of return affects the

security rate of return positively

g.)

The market rate of return affects the security rate of return positively

h.)

Since the data from the graph shows a changing height of the line instead of just a

straight line, this means that the data is not consistent and this means that the first rule which is
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the adequacy check in the regression analysis is not that achieved through the given data.

However, there is one thing confirmed in the analysis, which is the significant change in the

provided data set from the year’s performances.

References

Anas, M. R., & Nugroho, A. B. (2017). Unusual Market Activity (UMA) And Its Impact On

Indonesia Market Return Period 2017. Proceedings of the 2nd International Research

Confrence on Management and Business. School of Business and Management ITB.

Antunes, J., Meireles, A. R., Sanfelici, A., & Garcia, R. (2020). THE EFFECTS OF FIRM SIZE

ON RISK AND RETURN IN THE BRAZILIAN STOCK MARKET: A SECTORAL

ANALYSIS. Finance & Accounting Research Journal, 2(1), 38-44.

Bali, T. G., Hu, J., & Murray, S. (2019). Option implied volatility, skewness, and kurtosis and

the cross-section of expected stock returns. Georgetown McDonough School of Business

Research Paper.

Gupta, R., Pierdzioch, C., Selmi, R., & Wohar, M. E. (2018). Does partisan conflict predict a

reduction in US stock market (realized) volatility? Evidence from a quantile-on-quantile

regression model☆. The North American Journal of Economics and Finance, 43, 87-96.

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