NATIONAL ECONOMICS UNIVERSITY

ADVANCED EDUCATIONAL PROGRAM

BUSINESS STATISTICS

Tutorial 4
This tutorial will demonstrate some of the concepts we have discussed in the lectures about
probability distributions of both discrete and continuous variables.

Question 1

Write down the sample space of rolling a pair of dice (one white dice and one black dice).
Calculate:
(a) The probability of getting at least one double six in 24 throws of this experiment.
(b)The probability of the event A that the faces sum up to 3.
Now we throw the white dice before the black dice and suppose that the white dice comes up 1
(c) What is the probability of A?

Question 2

Sketch the distribution of Z, a standard normal variable. Use printed tables to answer the
following.
(d)Find the probabilities listed below.
i. P(Z<1.07)
ii. P(Z>-1.21)
iii. P(-1.32<Z<1.99)
(e) Find the value of c which makes the following statements true.
i. P(Z<c)=0.20
ii. P(|Z|>c)=0.02
iii. P(|Z|<c)=0.90

Question 3

Z. Inc., in the Sweden has developed a new product. The demand for the new product is
uncertain but can be described as ‘high’ or ‘low’ in any one year. After 4 years, the product is
expected to be obsolete. Management must decide whether to build a plant or to contract with a
factory in Vietnam to manufacture the product. Building a plant will be profitable if demand
remains high but could lead to a loss if demand drops in future years. After carefull study of the
market and of all relevant costs, Z’s planning office provides the following information. Let A be
the event that the first year’s demand is high, and B the event that the following 3 years’ demand
is high. The marketing division’s best estimate of the probabilities is:
P(A) = 0.9
P(B|A) = 0.36
P(B|Ac) = 0

1
The probability that building a plant is more profitable than contracting the production to
Vietnam is 0.95 if demand is high all 4 years, 0.3 if demand is high only in the first year, and 0.1
if demand is low all 4 years. Draw a tree diagram that organizes this information. The tree will
have three stages: first year’s demand, next three years’ demand, and whether building or
contracting is more profitable. Which decision has the higher probability of being more
profitable?

Question 4

A fast food chain pays its teenage employees an average wage of $9.20 per hour with a standard
deviation of 50 cents. Assuming wages are approximately normally distributed, answer the
following questions.
(a) What proportion of teenage employees receives wages between $8.50 and $10 per hour?
(b)Nineteen-year-olds, who constitute 6% of the chain’s teenage workforce are the most
highly paid. What would be their minimum hourly wage?

Question 5

A portfolio is composed of two stocks. Given the following parameters associated with the
returns of the two stocks:

Stock 1 2
Proportion of portfolio 0.30 0.70
Mean 0.12 0.25
Standard Deviation 0.02 0.15

a. Determine the mean and standard deviation of the return on the portfolio when the
coefficient of correlation is equal to 0.5; 0.25; and 0.
b. Describe what happens to the expected value and standard deviation of the portfolio
returns when the coefficient of correlation decreases.

Hints: you need to read an example required in the lecture notes before solving question 4.