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QMBE 6295 Spring 19 Final Exam Name____________________________

To maximize possible partial credit, be as complete as possible in presenting your solutions. In
manual calculations, show all the details. If Excel is used, give the precise formula, including
the function arguments. Make your logic very clear. Use reasonable precision levels.
1. Suppose that over a period of about one and a half years, the daily percent change (+ or -) for the S&P 500
daily adjusted closing value is approximately normally distributed with a mean of +0.04% and a standard
deviation of 0.90%. Use this model in answering the following questions.

a) For a randomly selected trading day, what the is probability that the percent change is less than +1%? (3)

1%−0.04 %
1.07= => P(z<1.07)=0.8577
0.9 %

b) For a randomly selected trading day, what the is probability that the percent change exceeds +2.0%? (4)

2 %−0.04 %
2.18= => P(z>2.18)=1- P(z<2.18)=1-0.9854=0.0146
0.9 %

c) For what proportion of the trading days is the percent change between -1.5% and +1.5%? (5)

1.5 %−0.04 %
1.62= => P(z<1.62)=0.9474
0.9 %

−1.5 %−0.04 %
-1.71= => P(z<-1.71)=0.0436
0.9 %

0.9474-0.0436=0.9038

d) What is the 3rd quartile of the percent change? (4)

The corresponding z statistics for 75th percentile is 0.67

x−0.04 %
0.67= => x=0.64%
0.9 %

e) The 20th percentile? (4)

The corresponding z statistics for 20th percentile is -0.84

x−0.04 %
-0.84= => x=-0.72%
0.9 %
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2. Mattel Corporation produces a toy remote-controlled car that requires three AA batteries. The mean life of
the battery packs in this product is assumed to be 9.3 hours, with a standard deviation of 1.5 hours. As a part
of its testing program, Mattel tests 30 sample packs of batteries. Of such sample packs, what is the proportion
expected to have a mean of less than 8.5 hours? (3)

8.5−9.3
z= 1.5 =-2.92
√ 30
P(z<-2.92)=0.0018

3. Suppose that it is reasonable to assume that 34% of Americans believe, with the President, that there can
be large tax cuts without increasing the deficit or cutting essential programs. What is the probability that of a
random sample of 80 Americans more than 30 share this sentiment? (4)

30
−0.34
80
z= =0.66

√ 0.34∗0.66
80

P(z>0.66)=1-P(z<0.66)=1-0.7454=0.2546

4. A sample of 35 boxes of Granola Crunch, a brand of cereal, yields a mean weight of 1.06 pounds of cereal
per box. Construct an 90% confidence interval for the mean fill weight of all Granola Crunch boxes. Assume a
population standard deviation of 0.08 pound. Show all the details of the calculation. (5)

0.08
Upper bound: 1.06+1.65*
√ 35
0.08
Lower bound: 1.06-1.65*
√ 35
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C.I. = (1.0377, 1.0823)

5. A price-earnings ratio or P/E ratio is calculated as a firm's share price compared to the income or profit
earned by the firm per share. Generally, a high P/E ratio suggests that investors are expecting higher earnings
growth in the future compared to companies with a lower P/E ratio. The following table shows the P/E ratios
for a sample of firms in the footwear industry:

Let these values represent a random sample drawn from a normally distributed population. Show your
calculation of a 95% confidence interval for the mean P/E ratio in this industry (you don’t have to show your
calculation of the necessary sample statistics – use a device for that -- but write their values below). (12)

x̄=15.697 1
s=5.2195

The sample size is small and the population standard deviation is unknown so we should use t-statistics.
Degrees of freedom is n-1=7-1 =6
From t-table we see that the critical t-statistics is 2.447
5.2195 5.2195
C.I. = (15.6971-2.447* , 15.6971+2.447* ) =(10.87, 20.52)
√7 √7

6. A tire manufacturer would like to estimate the average life of its new all-season light truck tires. Determine
the minimum sample size needed to construct an 99% confidence interval for this mean, with a margin of
error of 2,000 miles. Assume that the standard deviation for this particular brand is 8,500 miles. (4)
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The critical z value for 99% confidence interval is 2.58

2,000
¿
2.58 8,500 => n=120.23≈ 120
√n

7. The owner of the West End Kwick Fill Gas Station wishes to determine the proportion of customers who use
a credit card or debit card to pay at the pump. He surveys 150 customers and finds that 126 paid at the pump.
Develop a 90% confidence interval for the true population proportion of customers who pay at the pump.
(nearest 0.01) (6)

126
^p= =0.84
150

Upper Bound=0.84+1.65*
√ ^p∗(1− ^p )
150

Lower Bound=0.84-1.65*
√ ^p∗(1− ^p )
150

C.I. = (0.7906, 0.8894)