ISOM 2500 Business Statistics

Practice 1

1. A survey of banks revealed the following distribution for the interest rate being
charged on a home loan (based on a 30-year mortgage with a 10% down
payment).

Interest Rate 4.90% to 5.00% to 5.10% to 5.20% to 5.30% and

4.99% 5.09% 5.19% 5.29% above
Probability 0.12 0.23 0.24 0.35 0.06

If a bank is selected at random from this distribution, what is the chance that the
interest rate charged on a home loan will exceed 5.19%?

[Q2-Q4]
In October 2003, Consumer Reports evaluated the price and performance of
cordless phones by selecting a sample of 23 models. Computer output gives these
summaries for the prices ($):

2. Based on the summary statistics, which distribution would be look like?

3. The IQR for these data is _______.
4. If we remove the largest value from the list, how will the mean change?

5. Suppose that events A and B have probabilities 0.5 and 0.6 respectively.
Is it possible that A and B are mutually exclusive? True or False? Why?
6. A company has 2 machines that produce widgets. An older machine produces
23% defective widgets, while the new machine produces only 8% defective
widgets. In addition, the new machine produces 3 times as many widgets as the
older machine does. What is the probability that a randomly chosen widget
produced by the company is defective?

7. Each camper at the park is asked to fill out a survey which reads as follows:
“We are interested in knowing your return status. Are you planning to return to
this park for camping next summer? Circle the number corresponding to your
response.” Campers are also asked to supply their Zip Code. The camper will
circle one of the numbers below, depending on their status.
1
 NO UNLIKELY UNSURE LIKELY YES
1 2 3 4 5

The summary of the data from the responses consists of the “Zip Code,” and the
“Return Status” of the camper. “Which best describes the type of `Return
Status`?” What about the type of “Zip Code”?

8. The following data points represent the number of animal crackers in each kid’s
lunch box:
4, 4, 10, 11,15,7,14,12,6
Find the mean, median, mode, interquartile range (IQR)
and range of the data set.

9. If you roll two fair dice, what is the probability that the sum on the two dice
equals 6? What is the probability that at least one of them is greater than 2?

10. A student is questioned on 3 multiple choice (single correct answer) questions

that he has no idea about. Each question has 4 possible answers. On each
question he chooses an answer at random, independent of how he answered the
other questions. The chance that among these three questions he gets at least one
question wrong is closest to __________.

11. A software can successfully filter a junk email with probability 0.9. A regular
email will be mistakenly filtered by the software with probability 0.1. If 30% of
the emails are junk, what is the conditional probability that a filtered email is
junk?

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[Q12-13]
An appliance manufacturer maintains a repair center for its customers. Based on past
experience, 30% of all appliances sent in for repair have a mechanical problem (M),
and 70% have an electrical problem (E). If the problem is mechanical, 90% of the
appliances can be repaired and returned to the customer (RR); in the remaining 10%
of the cases the appliance must be replaced (REP) with a new unit. If the problem is
electrical, 60% can be repaired and returned to the customer, with the remaining 40%
being replaced with a new unit.

12. What percentage of all appliances sent to the repair center are replaced (REP)
with a new unit?

13. If an appliance at the repair center is selected at random and it needs to be

replaced with a new unit, what is the probability that the appliance has an
electrical problem?

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14. After the collapse of the stock market in October 1987, Business Week polled
its readers and asked whether they expected another big drop in the market
during the next 12 months. The data table for this question has two
variables. One indicates whether the reader owns stock and the others gives
the anticipated chance for another drop.

Check this contingency table defined by stock ownership and the anticipated
chances for a big drop in the market.

Stockholders Non stockholders

Very 18 26
likely

Somewhat 41 65
likely

Not very 52 68
likely

Not likely 19 31
at all

Unsure 8 13

a) What is the proportion of stockholders who think that a drop was

either somewhat likely or very likely?

b) What is the proportion of non-stockholders who think that a drop was

either somewhat likely or very likely?

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15. The human resource manager at a company has classified applicants according to
whether or not they have any computer skills (Yes or No), and whether or not
they have previous work experience (Yes or No). The results are summarized
below:

(a) If an applicant is randomly selected and the applicant has previous work
experience, then what is the probability that the applicant has computer
skills?

(b) If an applicant is randomly selected, what is the probability that the

applicant has no previous work experience but has computer skills?

(c) Based on the data given above, is an applicant having computer skills
independent or dependent of the applicant having previous work
experience? (Choose one and Explain your answer).

16. The price-earnings ratios of a sample of stocks have a mean value of 13.5 and a
standard deviation of 2. If the ratios have a bell-shaped distribution, what will be
the proportion of ratios that fall between 11.5 and 15.5? What about the
proportion between 9.5 and 15.5? What rule are you applying?

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17. A consumer group has surveyed 1000 people who have purchased appliances
and electronic equipment at a large department store. Consumers were asked if
they bought the extended warranty offered with the item they purchased. The
responses were organized by the country in which the purchased item was
manufactured – USA, China, or Japan. The responses are summarized in the
following table:

Product Country of
Origin
USA China Japan Total
Purchased Yes 100 150 200 450
Warranty No 250 100 200 550
Total 350 250 400 1000

(a) Is the responses of purchasing warranty associated with the product

country of Origin?
(b) What are the chi-squared value and Cramer’s V? How strong is the
association?
(c) An analyst has suggested that there are a large number of extended
warranties purchased on items that are made in Japan because consumers
believe that Japanese products are generally unreliable when compared with
products from the other countries. How would you explain this situation?

18. Analyzing the scatterplot

Describe the following scatterplots between X and Y in term of sign
(positive/negative) and how is the association.