Solutions Manual For Business Statistics 3e by Norean D Sharpe 0133866912

Solutions Manual for Business Statistics 3e by
Norean D. Sharpe 0133866912
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Solutions Manual for Business Statistics 3e by Norean D. Sharpe 0133866912
Chapter 6 – Random Variables and Probability Models
SECTION EXERCISES
SECTION 6.1
1.
a) Whether or not an employee includes a dependent child on his/her health insurance is a discrete
variable.
b) There are two possible values for this variable: Yes / No.
2.
a) Each employee’s compensation is a continuous variable.
b) This variable can take on any value in the compensation range of the company.
3. E(X) = (0)(0.5) + (1)(0.3) + (2)(0.2) = 0.7
4.
a) E(X) = (0.75)($100) + (0.25)( − $400) = − $25
b) Since the expected value is negative, buying this option doesn’t seem like a good decision.
SECTION 6.2
5. SD(X) = (0 − 0.7) 2 × 0.5 + (1 − 0.7) 2 × 0.3 + (2 − 0.7) 2 × 0.2 = 0.781 books
6. SD(X) = (100 − (−25)) 2 * 0.75 + ( −400 − (−25)) 2 * 0.25 = $216.506
7.
a) E(X) = (0.30)($10) + (0.50)($20) + (0.20)($30) = $19
2 2 2
b) SD(X) = (10 − 19) × 0.3 + ( 20 − 19) × 0.5 + (30 − 19) × 0.2 = $7.0
8.
a) E(X) = (0.20)(0) + (0.40)(1) + (0.40)(2) = 1.2 nights
2 2 2
b) SD(X) = ( 0 − 1.2 ) × 0.2 + ( 1 − 1.2 ) × 0.4 + ( 2 − 1.2 ) × 0.4 = 0.75 nights
SECTION 6.3
9.
a) 3X: μ = (3)(10) = 30, σ = (3)( 2) = 6
b) Y + 6: μ = 20 + 6 = 26, σ = 5
c) X + Y: μ = 10 + 20 = 30, σ = 22 + 52 = 29 = 5.39
d) X – Y: μ = 10 – 20 = –10, σ = 22 + 52 = 29 = 5.39
10.
a) X – 20: μ = 80 – 20 = 60, σ = 12
b) 0.5Y: μ = (0.5)(12) = 6, σ = (0.5)(3) = 1.5
c) X + Y: μ = 80 + 12 = 92, σ = 122 + 32 = 153 = 12.37
d) X – Y: μ = 80 – 12 = 68, σ = 12 2 + 32 = 153 = 12.37
6-1
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6-2 Chapter 6 Random Variables and Probability Models
11.
a) E(X+10) = E(X) + 10 = $100 + $10 = $110; SD(X + 10) = SD(X) = $12
b) E(5Y) = 5E(Y) = (5)($90) = $450; SD(5Y) = (5)SD(Y) = (5)($8) = $40
c) E(X+Y) = E(X) + E(Y) = $100 + $90 = $190;
To find SD(X+Y) first find VAR(X+Y)
VAR(X+Y) = VAR(X) + VAR(Y) = 144 $2 + 64 $2 = 208 $2
SD(X+Y) = 208 $ 2 = $14.42
d) In order to calculate the standard deviation (variance) in part (c), we must assume that the two
different financial instruments (X and Y) must be independent.
12. Using the complement rule, if 6% of the ornaments will break in shipping, then 94% will arrive safely. The
probability of two ornaments shipped separately to two different addresses arriving safely is therefore 0.94
× 0.94 = 0.88 or 88%. In order to calculate this probability, we assume that the two events (each ornament
arriving safely) are independent.
SECTION 6.4
13.
a) Yes. The outcomes are independent with a probability p = 1/6. The outcomes are {getting a 6} and
{not getting a 6}.
b) No. More than two outcomes are possible.
c) No. The chance of a woman (or man) changes depending on who has already been picked.
d) Yes, assuming responses (and cheating) are independent among the students.
14. Yes, the conditions for the Bernoulli model are satisfied. There are two possible outcomes on each trial
(the baggage is selected to be inspected or not). The probability of the baggage being selected for
inspection is the same (12%) on every trial. Since a computer is used to randomly decide whether a
traveler’s baggage should be selected, the trials are independent.
SECTION 6.5
15. Yes, the Uniform model can be used because each of the outcomes has the same probability (1/6) of
occurring.
16.
a) 0, 1, 2, 3, 4
b) Discrete (can list all outcomes).
c) No, the outcomes are not equally likely.
17. Because we want to know how many calls it will take to find a firm in the U.S. owned by a woman (how
many trials it will take to achieve the first success), the Geometric model should be used; p = 0.287.
18. Since the calls are independent, the probability that all three firms called are owned by women is (0.287)3 =
0.0236 or 0.024.
19.
a) Find λ. An inspector examines 50 shirts, each with 6 buttons, in an hour. Therefore, 300 buttons
are inspected per hour. Given that the probability of a button flaw is 0.002, then the mean number
of button flaws per hour is (0.002) (300) = 0.6 = λ. Now find P(X = 0) using the Poisson model:
e −0.6 0.60
P( X = 0) = = 0.5488
0!
b) Find P(X ≥ 1) = 1 – P(X = 0) = 1 – 0.5488 = 0.4512

Chapter 6 Random Variables and Probability Models 6-3
20. The total number of snaps inspected per hour is (70)(6) = 420. The mean number of snap flaws per hour is
(0.003)(420) = 1.26 = λ. Now find P(X = 0) using the Poisson model:
e−1.261.260 = 0.2837.
P( X = 0) =
0!
CHAPTER EXERCISES
21. New website.

a) 1, 2, 3,.…, n.
b) Discrete (can list all outcomes).
22. New website, part 2.

a) Any number greater than 0.
b) Continuous (variable can take on any value between 0 and infinity).
23. Repairs.
a) (0)(0.1) + (1)(0.3) + (2)(0.4) + (3)(0.2) = 1.7
b) The standard deviation: (0 − 1.7) 2 × 0.1 + (1 − 1.7) 2 × 0.3 + (2 − 1.7) 2 × 0.4 + (3 − 1.7) 2 × 0.2 = 0.9
24. Software company.

a) Expected profit = (0.30)($50,000) = $15,000
b) The standard deviation for the profit
= (50, 000 − 15, 000)2 × 0.30 + (0 − 15, 000)2 × 0.70 = $22,912.88
25. Commuting to work.

a) Expected # of red lights = (0)(0.05) + (1)(0.25) + (2)(0.35) + (3)(0.15) + (4)(0.15) + (5)(0.05) =
2.25 lights
b) The standard deviation:
(0 − 2.25) 2 * 0.05 + (1 − 2.25) 2 × 0.25 + (2 − 2.25) 2 × 0.35 + (3 − 2.25) 2 × 0.15 + (4 − 2.25) 2 × 0.15 + (5 − 2.25) 2 × 0.05 = 1.26
26. Defects.
a) Expected # of defects = (0)(0.61) + (1)(0.21) + (2)(0.11) + (3)(0.07) = 0.64 defects
b) The standard deviation:
(0 − 0.64) 2 × 0.61 + (1 − 0.64) 2 × 0.21 + (2 − 0.64) 2 × 0.11 + (3 − 0.64) 2 × 0.07 = 0.93 defects
27. Fishing tournament.

a) No, the probability he wins the second changes depending on whether he won the first.
b) The probability that he loses both tournaments: P(lose both) = P(lose 1st) × P(lose 2nd) =
0.6 × 0.7 = 0.42
c) The probability that he wins both tournaments:
P(win both) = P(win 1st) × P(win 2nd) = 0.4 × 0.2 = 0.08
d)
e) E(X) = (0)(0.42) + (1)(0.50) + (2)(0.08) = 0.66 tournaments;

SD(X) = (0 − 0.66) 2 × 0.42 + (1 − 0.66) 2 × 0.50 + (2 − 0.66) 2 × 0.08 = 0.62 tournaments

28. Contracts.
a) The contracts are not independent. The probability that your company wins the second contract
depends on whether your company wins the first contract.
b) The probability that you get both contracts: P(win both) = P(win 1st) × P(win 2nd) = 0.8 × 0.2
= 0.16.
c) The probability that you lose both tournaments: P(lose both) = P(lose 1st) × P(lose 2nd) =
0.2 × 0.7 = 0.14.
d)
e) Expected value: μ = E(X) = (0)(0.14) + (1)(0.70) + (2)(0.16) = 1.02 contracts

σ= (0 − 1.02) 2 × 0.14 + (1 − 1.02) 2 × 0.70 + (2 − 1.02)2 × 0.16 = 0.55 contracts
29. Battery recall.

a) No, because once you select a battery from your 10, the probability of the next battery being good
or bad changes (shown in part b).
b)
c) Expected # of good batteries: μ = E(X) = (0)(6/90) + (1)(42/90) + (2)(42/90) = 1.4 batteries

d) σ = (0 − 1.4) 2 × (6 / 90) + (1 − 1.4) 2 × (42 / 90) + (2 − 1.4) 2 × (42 / 90) = 0.61 batteries
30. Grocery supplier.

a) Expected # of broken eggs: μ = E(X) = (3)(0.6) = 1.8 eggs
b) σ = 0.52 + 0.52 + 0.52 = 0.866 or 0.87 eggs
c) The cartons of eggs must be independent of each other to compute the standard deviation (but not
the mean).
31. Commuting, part 2.

Wait time: μ = E(X) = (5)(14.8) = 74.0 seconds
σ= 9.2 2 + 9.2 2 + 9.2 2 + 9.2 2 + 9.2 2 ≈ 20.57 seconds. (Answers to standard deviation may vary
slightly due to rounding of the standard deviation of the number of red lights each day.) The standard
deviation may be calculated only if the stoplights are independent of each other.
32. Defective pixels.

a) Expected # of defective pixels per screen: μ = E(X) = (0)(0.95) + (1)(0.04) + (2)(0.008) +
(3)(0.002) + (4)(0) = 0.062 defective pixels
b) The standard deviation σ =
(0 − 0.062)2 × (0.95) + (1 − 0.062)2 × (0.04) + (2 − 0.062)2 × (0.008) + (3 − 0.062) 2 × 0.002 + (4 − 0.062)2 × 0 =
0.294 defective pixels
c) Expected number per screen 0.062 × 100 screens = 6.2 defective pixels
d) The standard deviation σ of the number of defective pixels per screen (0.294)( 100 = 10 ) = 2.94
defective pixels.

33. Repair calls.

a) Calls in 24 hours: μ = E(X) = (8)(1.7) = 13.6 calls;
σ = (0.9)(8) = (0.9 )( 8) = 2.55 calls
b) The standard deviation is valid only if the hours are independent of one another.
c) The number of repair calls in a typical 8-hour day would be μ ± σ = 13.6 ± 2.55 = 11.05 to 16.15.
Rounding, a typical 8-hour day would have about 11 to 16 repair calls.
d) Two standard deviations above the average would be much more than expected. This would be
μ ± σ = 13.6 ± (2)(2.55) = 13.6 ± 5.1 = 8.5 to 18.7. 19 repair calls would be a lot.
34. Casino.
a) The standard deviation of the slot machine payouts is large because most players will lose money,
but a few large payouts are expected. The payouts are highly variable.
b) μ = E(profit from 5 plays) = (5)($0.08) = $0.40
σ = SD(5 plays) = 1202 + 1202 + 1202 + 1202 + 1202 ≈ $268.33
c) μ = E(1000 plays) = 1000 × ($0.08) = $80
σ = SD(1000 plays) = 1000 ×1202 ≈ $3,794.73
35. Bike sale.

a) B = # of basic models; D = # of deluxe models; Net Profit = $120B + $150D – $200
b) μ = $120 × 5.4 + $150 × 3.2 – $200 = $928.00
c) σ = SD(net profit) = 1202 ×1.22 + 1502 × 0.82 = $187.45
d) Mean – no; SD – yes (sales are independent).
36. Farmer’s market.

a) A = price/lb of apples; P = price/lb of potatoes; Net Profit = 100A + 50P – $2
b) μ = (100)($0.50) + (50)($0.30) – $2 = $63.00
c) σ = SD(net income) = 1002 × 0.22 + 502 × 0.12 = $20.62
d) Mean – no; SD – yes (sales are independent).
37. Cancelled flights.

a) (80%)($100) – (20%)(150) = $80 – $30 = $50
b) σ = SD(gain) = 1002 = $100
38. Day trading.

a) (50%)($200) + (20%)(1000) + (30%)(0) = $300 − $200 (cost) = $100
( $0 − $100 ) × 0.5 + (−$200-$100)2 × 0.30 + ( $800 − $100 ) × 0.2 = $360.56
2 2
b) σ = SD(gain) =
39. eBay.
a) Let Xi = price of ith Hulk figure sold; Yi = price of ith Iron Man figure sold; Insertion Fee = $0.55;
T = Closing Fee = 0.0875 (X1 + X2 + … + X19 + Y1 + … + Y13)
Net Income = (X1 + X2 + … + X19 + Y1 + … + Y13) – 32(0.55) – 0.0875 (X1 + X2 + … + X19 + Y1 +
… + Y13)
b) μ = E(net income) = (19 × $12.11 + 13 × $10.19) – 32 × $0.55 – 0.0875 × Total Sales = $313.24
where Total Sales = (19)($12.11) + (13)($10.19) = $362.56
c) SD(net income): σ = 19 ×1.382 + 13 × 0.77 2 = $6.625
d) Yes, to compute the standard deviation.
40. Real estate.

a) Let Xi = cleaning cost of house; Yi = selling price of house i(less closing costs and taxes);
Net Profit = Y1 + Y2 + Y3 – (X1 + X2 + X3) – 1,000,000
b) μ = E(net profit) = (3)($475,000) –(3)($100,000) – $1,000,000 = $125,000

c) σ = SD(net profit)= 3 × $15, 0002 + 3 × $12,5002 = $33,819.37

d) Yes, to compute the standard deviation.
41. Bernoulli.
a) No, these are not Bernoulli trials. The possible outcomes are 1, 2, 3, 4, 5, and 6. There are more
than two possible outcomes.
b) Yes, these may be considered Bernoulli trials. There are only two possible outcomes: Type A and
not Type A. Assuming that the 120 donors are representative of the population, the probability of
having Type A blood is 43%. The trials are not independent because the population is finite, but
the 120 donors represent less than 10% of all possible donors.
c) No, these are not Bernoulli trials. The probability of choosing a man changes after each promotion
and the 10% condition is violated.
d) No, these are not Bernoulli trials. We are sampling without replacement, so the trials are not
independent. Samples without replacement may be considered Bernoulli trials if the sample size is
less than 10% of the population, but 500 is more than 10% of 3000.
e) Yes, these may be considered Bernoulli trials. There are only two possible outcomes: sealed
properly and not sealed properly. The probability that a package is unsealed is constant at about
10%, as long as the packages checked are a representative sample of all packages. In addition, the
24 packages are less than 10% of population.
42. Bernoulli, part 2.

a) No, these are not Bernoulli trials. There are more than two possible outcomes for color preference.
b) Yes, these may be considered Bernoulli trials. There are only two possible outcomes: properly
attached buttons and improperly attached buttons. As long as the button problem occurs randomly,
the probability of a doll having improperly attached buttons is constant at about 3%. The trials are
not independent since the total number of dolls is finite, but 37 dolls is probably less than 10% of
all dolls.
c) No, these are not Bernoulli trials. The trials are not independent since the probability of picking a
council member with a particular political affiliation changes depending on who has already been
picked. The 10% condition is not met since the sample of size 4 is more than 10% of the
population of 19 people.
d) Yes, these may be considered Bernoulli trials. There are only two possible outcomes: dissatisfied
and not dissatisfied. Assuming that dissatisfaction patterns in this company are similar to the
patterns in the industry, the probability that an employee is dissatisfied is constant at 74%. The
trials are not independent since the population of all employees is finite, but 481 is less than 10%
of all employees in the industry.
43. Closing sales.

a) Probability that he fails to close for the 1st time on his 5th attempt = (0.804)(0.20) = 0.0819.
b) Probability that he closes his 1st presentation on his 4th attempt = (0.203)(0.80) = 0.0064.
c) Probability that the 1st presentation he closes is on his 2nd attempt = (0.20)(0.80) = 0.16.
d) Probability that the 1st presentation he closes is on one of his first 3 attempts is calculated by using
the probabilities for the possible configurations for the 3 attempts: P(1) + P(2) + P(3) = 0.8 +
(0.2)(0.8) + (0.2)(0.2)(0.8) = 0.992.
44. Computer chip manufacturer.

a) Probability that the 5th chip tested is the 1st bad one = (0.984)(0.02) = 0.0184
b) 0.02 + (0.02)(0.98) + (0.02)(0.982) + (0.02)(0.983)+ (0.02)(0.984) + (0.02)(0.985) + (0.02)(0.986) +
(0.02)(0.987) +( 0.02)(0.988)+ (0.02)(0.989) =
0.02 + 0.0196 + 0.0192 + 0.0188 + 0.0184 + 0.0180 + 0.0177 + 0.0174 + 0.0170 + 0.0167 =
0.1828 or w/o roundoff to 0.1829
c) Probability that the 1st bad chip is the 4th one = (0.983)(0.02) = 0.0188
d) Probability that the 1st bad chip is one of the 1st 3 =0.02 + (0.98)(0.02) + (0.982)(0.02)= 0.0588

45. Side effects. E(X) = np = 1 = n × 0.07 =, so n = 14.29 or 15 patients
46. Credit cards. E(X) = (1/p) = 1/0.35 which means that we expect 2.86 or about 3 students.
47. Missing pixels.

a) The mean number of pixels per square foot = 4.7 blank pixels/60 sq ft = 0.0783 pixels per sq ft.
b) The standard deviation of pixels per square foot = 0.0783 = 0.280 pixels
c) Probability that a 2ft by 3ft screen has at least one defect: P(at least one defect) = 1 – P(zero
defects). 0.0783 pixels/sq ft × 6 = 0.4698 defects
e−0.4698 0.46980
P( X = 0) = = 0.625 so 1– P (X = 0) = 0.375, could be roundoff differences.
0!
d) Probability that a 2ft by 3ft screen will be replaced (> 2 pixels) = 1– P (X < 2);
e−0.47 0.47 2 e−0.47 0.471 e−0.47 0.470
P( X = 2) = = 0.0690 + P( X = 1) = = 0.2937 + P( X = 0) = = 0.625
2! 1! 0!
so 1 – P (X < 2) = 1 – (0.690 + 0.2937 + 0.625) = 1– 0.9377 = 0.012
48. Bean bags.

a) The mean # of stops per hr: λ = 52 stops/8 hrs = 6.5 stops/hr
b) The standard deviation: λ = 6.5 = 2.55 stops
49. Hurricane insurance.

a. The probability of having a year in Florida with no hurricane hits:
−1.2273
(27 storms/22 yr) = 1.2273 storms/yr: P( X = 0) = e 1.22730
= 0.293
0!
−1.2273
b. The probability of exactly one hit: P( X = 1) = e 1.22731
= 0.3597
1!
c. The probability of more than 1 hit is same as 1 – P (X < 1).
e−1.22731.22731 e−1.22731.22730
P( X = 1) = = 0.3597+P( X = 0) = = 0.2930
1! 0!
so 1 – P (X < 1) = 1 – (0.3597 + 0.2930) = 0.347
50. Hurricane insurance, part 2.

a) The mean # of hurricanes per yr: λ = 144 hurricanes/18 yrs = 8 hurricanes/yr
b) The standard deviation: λ = 8 = 2.83
−8 0
c) Probability of having a year with no major hurricanes: P( X = 0) = e 8 = 0.00034
0!
d) Probability of going 3 years in a row without a major hurricane: 0.000343
51. Lefties.
a) The probability that the first lefty is the fifth person chosen: (0.87)(0.87)(0.87)(0.87)(0.13) =
(0.874)(0.13) = 0.0745.
b) The probability that there are some lefties among the 5 people = 1 – probability that there are no
lefties = 1 – 0.875 = 0.5016 = 0.502
c) Probability that the first lefty is the second or third person: 2nd: (0.87)(0.13) = 0.1131;
3rd: (0.87)(0.87)(0.13) = 0.098: Total = 0.1131 + 0.098 = 0.211
 5!  3 2
d) Probability of exactly 3 lefties in the group: P(3) =   (0.13) (0.87) = 0.0166
 (5 − 3)!3! 
 5!  3 2
e) Probability of at least 3 lefties in the group: P(3) =   (0.13) (0.87) = 0.0166;
 (5 − 3)!3! 

 5!  4 1 5
P(4) =   (0.13 )(0.87 ) = 0.0012; P(5) = (0.13 ) = 0.00004;
 (5 − 4)!4! 
Total: 0.0166 + 0.0012 + 0.00004 = 0.0179
f) Probability that there are no more than 3 lefties in the group:
1 – P(4+5+6) = 1 – (0.0012 + 0.00004) = 0.9987
52. Arrows.
a) The probability that her first bull’s-eye comes on the third arrow: 0.20 × 0.20 × 0.80 = 0.032
b) The probability that she misses the bull’s-eye at least once: 1 – probability of never missing:
1 – 0.806 = 1 – 0.262 = 0.738
c) The probability that her first bull’s-eye comes on the fourth or fifth arrow:
Fourth: 0.20 × 0.20 × 0.20 × 0.80 = 0.0064
Fifth: 0.20 × 0.20 × 0.20 × 0.20 × 0.80 = 0.00128
Total: 0.0064 + 0.00128 = 0.00768
d) The probability of exactly 4 bull’s eyes: P(4) =  6! 
 (0.8) (0.2) = 0.246
4 2
 (6 − 4)!4! 
e) Probability of at least 4 bull’s-eyes: P(4) =  6! 
 (0.8) (0.2) = 0.246;
4 2
 (6 − 4)!4! 
P(5) =  6!  6
 (0.8) (0.2) = 0.393; P(6) = (0.8) = 0.262
5 1
 (6 − 5)!5! 
Total Probability = 0.246 + 0.393 + 0.262= 0.901
f) Probability of at most 4 bull’s eyes: can have 0, 1, 2, 3 or 4 bull’s eyes.

6! 6!
P(4) = (0.8) 4 (0.2) 2 = 0.24576; P(3) = (0.8)3 (0.2)3 = 0.082;
(6 − 4)!4! (6 − 3)!3!
6! 6!
P(2) = (0.8) 2 (0.2) 4 = 0.0154 = (0.8)1 (0.2)5 = 0.00154
(6 − 2)!2! (6 − 1)!1!
P(0) = 0.206 = 0; Total = 0.24576 + 0.082 + 0.0154 + 0.00154 = 0.3447 = 0.345
53. Satisfaction survey.

a) A uniform distribution; all numbers should be equally likely to be selected.
b) The probability that the number selected will be an even number: 0.50 or 50%.
c) The probability that the number selected will end in 000: 10/9999 = 0.001.
54. Manufacturing quality.

a) A uniform distribution; all phones should be equally likely to be selected.
b) Probability that a randomly selected cell phone will be one of the last 100 to be produced: 0.10 or
10%.
c) Probability from the last 200: 0.20 or 20% and probability from the first 50: 0.05 or 5%
Add probabilities to satisfy the either/or statement: 0.20 + 0.05 = 0.25 or 25%
d) Probability the first two picked will be from last 100: 0.10 × 0.10 = 0.01 or 1%
55. Web visitors.

a) The Poisson model because it is a good model to use when the data consists of counts of
occurrences. The events must be independent and the mean number of occurrences stays constant.
b) Probability that in any one minute at least one purchase is made: P(X ≥1) = 1– P(X=0)
e−3 30
P( X = 0) = = 0.0498 so 1 – P(X=0) = 1– 0.0498 = 0.9502
0!
c) Probability that no one makes a purchase in the next 2 minutes:
e −6 60
P( X = 0) = = 0.0025
0!
56. Quality control.

a) The Poisson model because it is a good model to use when the data consists of counts of
occurrences. The events must be independent and the mean number of occurrences stays constant.
e −2 20
b) Probability that no faulty cell phones will be produced tomorrow: P( X = 0) = = 0.1353
0!
c) Probability that 3 or more faulty cell phones were produced today: P(X≥3) = 1– P(X≤2).
e −2 22 e −2 21 e −2 20
P( X = 2) = = 0.2707; P( X = 1) = = 0.2707; P( X = 0) = = 0.1353
2! 1! 0!
P(X≥3) = 1– P(X≤2) = 1–(0.2707 + 0.2707 + 0.1353) = 1– 0.6767 = 0.3233
57. Lefties, redux.

a) Number of lefties expected: E(X) = np = 5 × 0.13 = 0.65
b) The standard deviation: SD(X) = npq = 5 × 0.87 × 0.13 = 0.75
c) How many people until reach a lefty: E(X) = np = n × 0.13 = 1; n = 7.69 or 8 selections.
58. More arrows.

a) The number of expected bulls-eyes: E(X) = np = 6 × 0.80 = 4.8 or 5 rounded up.
b) The standard deviation: SD(X) = npq = 6 × 0.80 × 0.20 = 0.98
c) It will take: E(X) = np = 1 = n × 0.80 =, so n = 1.25 shots.
59. Still more lefties.

a) Mean and standard deviation of the # of right-handers: µ = 12 × 0.87 = 10.44
The standard deviation: SD(X) = npq = 12 × 0.87 × 0.13 =1.16
b) Probability of at least 1 is left-handed = 1 – all right-handed: 1 – 0.8712 = 0.812
c) 1 – P(11 and 12) = 1 –  12!  11 1 12
 (0.87) (0.13) + (.87 ) = 1 – (0.337 + 0.188) =
 (12 − 11)!11! 
1 – (0.525) = 0.475
d) Probability of exactly 6 of each: P(6) =  12! 
 (0.87) (0.13) = 0.00193
6 6
 (12 − 6)!6! 
e) Probability that the majority is right-handed = probability of 7 or more right handed;
P(7) =  12! 
 (0.87) (0.13) = 0.011 ; P(8) = 
7 5  12! 
 (0.87) (0.13) = 0.0464;
8 4
 (12 − 7)!7!   (12 − 8)!8! 

P(9) =  12!  (0.87)9 (0.13)3 = 0.138; P(10) =  12! 
 (0.87) (0.13) = 0.277;
10 2
 (12 − 9)!9!   (12 − 10)!10! 

P(11) =  12!  11 1 12
 (0.87) (0.13) = 0.337; P(12) = (.87 ) = 0.188;
 (12 − 11)!11! 
Total = 0.011 + 0.0464 + 0.138 + 0.277 + 0.337 + 0.188 = 0.9974 or due to roundoff 0.998
60. Still more arrows.

a) Mean and standard deviation of the # of bulls-eyes: µ = 10 × 0.80 = 8
The standard deviation: SD(X) = npq = 10 × 0.80 × 0.20 =1.26
c) Probability that she never misses: 0.8010 = 0.107
The probability that there are no more than 8 bulls-eyes = 1 – (9 or 10) bulls-eyes:
P(9) =  10!  10
 (0.8) (0.2) = 0.2684; P(10) = (0.8 ) = 0.1074;
9 1
 (10 − 9)!9! 
Total = 1 – (0.2684 + 0.1074) = 1 – 0.3758 = 0.624

d) The probability of exactly 8 bulls-eyes: P(8) = 

 10! 
 (0.8) (0.2) = 0.302
8 2
 (10 − 8)!8! 
e) The probability that she hits the bulls-eye more often than she misses or at least 6/10:
P(6 or 7 or 8 or 9 or 10) bulls-eyes:
 10! 
P(6) =   (0.8) (0.2) = 0.088;
6 4
 (10 − 6)!6! 

P(7) =  10!   10! 
 (0.8) (0.2) = 0.2013; P(8) =  (0.8) (0.2) = 0.302
7 3 8 2

 (10 − 7)!7!   (10 − 8)!8! 
P(9) = 
 10!  10
 (0.8) (0.2) = 0.2684; P(10) = (.8 ) = 0.1074;
9 1
 (10 − 9)!9! 
Total: 0.088 + 0.2013 + 0.302 + 0.2684 + 0.1074 = 0.967
Ethics in Action
Kurt’s Ethical Dilemma: Kurt finds that his projected standard deviations are lower if he uses a different method of
calculating, in the text – more complex. Although this method looks OK algebraically, it does not follow the logic
set out in this chapter. Var(½X) is different than the ½ Var(X) and there would be certain manipulated values that
would result in much lower standard deviations but other combinations will not. Essentially, Kurt would be
generalizing based on one or a few specific scenarios.
Ethical Solution: Kurt should consult an objective analyst not associated with this investor group who can study the
data and present the correct interpretations. The resulting analysis should be the best one for all projected cases, not
just one or two favorable ones.
For further information on the official American Statistical Association’s Ethical Guidelines, visit:
http://www.amstat.org/about/ethicalguidelines.cfm
The Ethical Guidelines address important ethical considerations regarding professionalism and responsibilities.
Brief Case – Investment Options
A young entrepreneur has $30,000 to invest. She has three possible investment options: (1) CD, (2) mutual fund, or
(3) growth stock. Assuming that the probability of a strong economy over the next year is 0.3, 0.5 or 0.7, evaluate
each investment option under the three possible scenarios. Sensitivity analysis is performed using a range of interest
rates for CD’s and a range of returns for the mutual fund and a range of returns for the growth stock.
Using the current annual return of 2.5% on a 3-year CD, the range of interest rates for the sensitivity analysis is
2.0% to 3.0%.
The return on a CD investment does not depend on the economy. A CD investment would yield between $30,600
and $30,900, depending on the interest rate.
The range of returns for sensitivity analysis with the mutual fund for a strong and weak economy, respectively, are
(1) 8% to 0%, (2) 10% to -2%, and (3)12% to -4%.
Scenario I (Worst Case)
P(Strong Economy) = 0.3

P(Weak Economy) = 0.7
E(Mutual Fund - 1) = 0.3($32,400) + 0.7($30,000) = $30,720

E(Mutual Fund - 2) = 0.3($33,000) + 0.7($29,400) = $30,480
E(Mutual Fund - 3) = 0.3($33,600) + 0.7($28,800) = $30,240

SD(Mutual Fund - 1) = $1099.82

Scenario II

E(Mutual Fund - 1) = 0.5($32,400) + 0.5($30,000) = $31,200

E(Mutual Fund - 2) = 0.5($33,000) + 0.5($29,400) = $31,200
E(Mutual Fund - 3) = 0.5($33,600) + 0.5($28,800) = $31,200
SD(Mutual Fund - 1) = $1200

Scenario III (Best Case)

E(Mutual Fund - 1) = 0.7($32,400) + 0.3($30,000) = $31,680

E(Mutual Fund - 2) = 0.7($33,000) + 0.3($29,400) = $31,920
E(Mutual Fund - 3) = 0.7($33,600) + 0.3($28,800) = $32,160

The range of returns for sensitivity analysis with the growth stock for a strong and weak economy, respectively, are
(1) 10% to -10%, (2) 25% to -25% and (3) 40% to -40%.
Scenario I (Worst Case)

E(Growth Stock - 1) = 0.3($33,000) + 0.7($27,000) = $28,800

E(Growth Stock - 2) = 0.3($37,500) + 0.7($22,500) = $27,000
E(Growth Stock - 3) = 0.3($42,000) + 0.7($18,000) = $25,200
SD(Growth Stock - 1) = $2749.54

SD(Growth Stock - 3) = $10,998.18
Scenario II

E(Growth Stock - 1) = 0.5($33,000) + 0.5($27,000) = $30,000

E(Growth Stock - 2) = 0.5($37,500) + 0.5($22,500) = $30,000
E(Growth Stock - 3) = 0.5($42,000) + 0.5($18,000) = $30,000

Solutions Manual for Business Statistics 3e by Norean D. Sharpe 0133866912
SD(Growth Stock - 1) = $3000

SD(Growth Stock - 2) = $7500
SD(Growth Stock - 3) = $12,000
Scenario III (Best Case)

E(Growth Stock - 1) = 0.7($33,000) + 0.3($27,000) = $31,200

E(Growth Stock - 2) = 0.7($37,500) + 0.3($22,500) = $33,000
E(Growth Stock - 3) = 0.7($42,000) + 0.3($18,000) = $34,800

SD(Growth Stock - 3) = $10,998.18
Discussion:
An investment in a CD will yield between $30,600 and $30,900 depending on the interest rate. There is no volatility
in this type of investment, as the interest rate of return is guaranteed with certainty.
The investments in either a mutual fund or growth stock will involve uncertainty as the expected return depends on
the state of the economy. Assuming that the probability of a strong economy in the next year is 0.3, 0.5 or 0.7, we
can think in terms of three scenarios (worst case, 50-50, and best case). As there is also uncertainty regarding the
rate of return in these investments, sensitivity analysis is performed using three possible ranges for the rates of
return.
In the worst case scenario for the economy, the expected value for a $30,000 investment in a balanced mutual fund
is $30,720, $30,480 or $30,240. The greater the difference in the rate of returns with a strong economy versus a
weak economy, the higher the volatility (as measured by the standard deviation) in the market value of the
investment. The expected value is less and the volatility higher for an investment in a growth stock, regardless of
the rates of return used. Provided that the interest rate on a CD is at least 2.4%, then it would be the best investment
given the worst case scenario.
With an equal chance of strong or weak economy in the next year, the expected value for a $30,000 investment in a
balanced mutual fund is higher than that in a growth stock. In addition, the expected value ($31,200 regardless of
the rate of return) is higher than what would result from an investment made in a CD. However, there is volatility
and the actual return could be less than the original investment.
In the best case scenario for the economy, the expected value for a $30,000 investment in a growth stock is generally
higher than for that in a balanced mutual fund. As is the case in any scenario regarding the economy, the volatility
is much higher for investments made in a growth stock compared to a balanced mutual fund.
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Chapter 6 – Random Variables and Probability Models

3. E(X) = (0)(0.5) + (1)(0.3) + (2)(0.2) = 0.7

6. SD(X) = (100 − (−25)) 2 * 0.75 + ( −400 − (−25)) 2 * 0.25 = $216.506

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21. New website.

22. New website, part 2.

24. Software company.

25. Commuting to work.

27. Fishing tournament.

e) E(X) = (0)(0.42) + (1)(0.50) + (2)(0.08) = 0.66 tournaments;

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e) Expected value: μ = E(X) = (0)(0.14) + (1)(0.70) + (2)(0.16) = 1.02 contracts

29. Battery recall.

c) Expected # of good batteries: μ = E(X) = (0)(6/90) + (1)(42/90) + (2)(42/90) = 1.4 batteries

30. Grocery supplier.

31. Commuting, part 2.

32. Defective pixels.

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33. Repair calls.

35. Bike sale.

36. Farmer’s market.

37. Cancelled flights.

38. Day trading.

40. Real estate.

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c) σ = SD(net profit)= 3 × $15, 0002 + 3 × $12,5002 = $33,819.37

42. Bernoulli, part 2.

43. Closing sales.

44. Computer chip manufacturer.

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45. Side effects. E(X) = np = 1 = n × 0.07 =, so n = 14.29 or 15 patients

47. Missing pixels.

48. Bean bags.

49. Hurricane insurance.

50. Hurricane insurance, part 2.

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f) Probability of at most 4 bull’s eyes: can have 0, 1, 2, 3 or 4 bull’s eyes.

53. Satisfaction survey.

54. Manufacturing quality.

55. Web visitors.

56. Quality control.

57. Lefties, redux.

58. More arrows.

59. Still more lefties.

 (12 − 7)!7!   (12 − 8)!8! 

 (12 − 9)!9!   (12 − 10)!10! 

60. Still more arrows.

Copyright © 2015 Pearson Education, Inc.

d) The probability of exactly 8 bulls-eyes: P(8) = 

Brief Case – Investment Options

Scenario I (Worst Case)

P(Strong Economy) = 0.3

E(Mutual Fund - 1) = 0.3($32,400) + 0.7($30,000) = $30,720

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SD(Mutual Fund - 1) = $1099.82

P(Strong Economy) = 0.5

E(Mutual Fund - 1) = 0.5($32,400) + 0.5($30,000) = $31,200

SD(Mutual Fund - 1) = $1200

Scenario III (Best Case)