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Love to Excel

PRESENTATION 4

calvin houng |christopher chien | clement thiang |


glen tan | tham wan yi

Question 1
exercise 3.4

Love to Excel
An absolute can only be given in an intuition, while all the rest has to do with
analysis. Henri Bergson

Question 1
(a) Let X be defined as the duration a companys air pump will last
X~N(61000,9000^2)
Question states that if pumps fails before vehicle has travelled 50,000 miles,
it will be required at no cost.
P(X<5000)= 0.1108 or 11.08%

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Question 1
(b) Let X be defined as the duration a companys air pump will last
X~N(61000,9000^2)
P(X=50,000)
= 0.00210%
However, answer should be 0 as you cannot find the probability distribution
at a point.

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Question 1
(c) Let X be defined as the duration a companys air pump will last
X~N(61000,9000^2)
P(42000<X<570000)
=P(X<57000) - P(X<42000)
= 0.310979262 or 31.10%

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Question 1
(d) Let X be defined as the duration a companys air pump will last
X~N(61000,9000^2)
For P=0.8,
= NORMINV (0.8,61000,9000)
= 68574.5911
= 68575 miles

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Q&A
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Love to Excel
Don't strive to be perfect. Strive for excellence.
Victoria Principal

Love to Excel
PRESENTATION 4

calvin houng |christopher chien | clement thiang |


glen tan | tham wan yi

Question 2
exercise 3.9

Love to Excel
An absolute can only be given in an intuition, while all the rest has to do with
analysis. Henri Bergson

Question 2
a)

Let X be defined as the percentage increase in Dow Jones.


Let Y be defined as the percentage increase in the S&P 500

X~N(11,13^2)
Y~N(10,12^2)
P(X>11)
= 1-P(X<11)
= 0.5

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Question 2
b) Let X be defined as the percentage increase in Dow Jones.
Let Y be defined as the percentage increase in the S&P 500
X~N(11,13^2)
Y~N(10,12^2)
P(X<11)
= 0.04529
= 0.0453

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Question 2
c)

Let X be defined as the percentage increase in Dow Jones.


Let Y be defined as the percentage increase in the S&P 500

X~N(11,13^2)
Y~N(10,12^2)
P(Y<15)
= 0.6615
= 0.662

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Question 2
d) E(0.3X+0.7Y)
= 0.3(11) + 0.7(10)
= 10.3
Var(0.3X+0.7Y)
=0.3^2VarX + 0.7^2VarY + 2(0.3)(0.7) xy(0.43)
= 113.9436
Std Dev: 10.674
= 10.67

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Question 2
e) E(X-Y)
= 11-10
=1
Var(X-Y)
=1^2*13^2 + (-1)^2*12^2 + 2(1)(-1)*13*12*0.43
= 178.84
Std Dev: 13.373

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Question 2
e) P(X>Y)
= P(X-Y>0)
= 1 P(X-Y<0)
= 0.5298
= 0.530

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Q&A
thanks for listening!

Love to Excel
Don't strive to be perfect. Strive for excellence.
Victoria Principal

Love to Excel
PRESENTATION 4

calvin houng |christopher chien | clement thiang |


glen tan | tham wan yi

Question 3
exercise 3.13

Love to Excel
An absolute can only be given in an intuition, while all the rest has to do with
analysis. Henri Bergson

Question 3
Company
Avco

Boscom
Caltrans

Expected Annual Rate of


Return

8.00%
11.00%

17.00%

Portfolio
Explorer Fund
Integrity Fund

% in Avco Inc
70%
34%

Standard Deviation of Rate


of Return

0.50%
6.00%

20.00%

% in Boscom Inc
15%
33%

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% in Caltrans Inc
15%
33%

Question 3
Expected Return (Explorer)
= 0.7*0.08 + 0.15*0.11 + 0.15*0.17
= 9.8
Expected Return (Integrity)
= 0.34*0.08 + 0.33*0.11 + 0.33*0.17
= 11.96

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Question 3
(A + B) = A + 2AB + B
Var(A + B) = Var(A) + 2 Cov (A,B) + Var(B)
Hence:
Var(A + B + C) = Var(A) + Var(B) + Var(C) + 2 Cov (A,B) + 2 Cov
(A,C) + 2 Cov (B,C)
As annual returns are mutually independent, Cov (A,B) = 0 and Cov (B,C)
=0

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Question 3
Var_Explorer(A+B+C)
= 0.7^2*0.5^2+0.15^2*6^2+0.15^2*20^2
= 9.9325
Std Dev= 3.1515
X~N(9.9325,3.1515^2)
P(X>0)
= 1- P(X<0)
= 0.9990631
= 99.91% (Positive, In the black)

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Question 3
Var_Integrity(A+B+C)
= 0.7^2*0.5^2+0.15^2*6^2+0.15^2*20^2
= 47.5093
Std Dev= 6.892699
X~N(47.5093,6.892699^2)
P(X>0)
= 1- P(X<0)
= 0.9586446
= 95.86% (Positive, In the black)

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Q&A
thanks for listening!

Love to Excel
Don't strive to be perfect. Strive for excellence.
Victoria Principal

Love to Excel
PRESENTATION 4

calvin houng |christopher chien | clement thiang |


glen tan | tham wan yi

Question 4
exercise 3.16

Love to Excel
An absolute can only be given in an intuition, while all the rest has to do with
analysis. Henri Bergson

Question 4
p values

Condition

Minimum n value

0.5

n 10 and n 5.26

10

0.1

n 50 and n 5.56

50

0.01

n 500 and n 5.05

500

0.001

n 5000 and n 5.01

5000

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Question 4
Let X be a binomial distribution with probability of success 0.01, and 20
attempts.
p = 0.01, n = 20
X~Binom(20,0.01)
P(X 0)
= 0.817906938

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Question 4
Approximating Binomial to Normal
= 0.2, = 0.444972
Let X be a normal distribution with mean 0.2 and standard deviation of
0.445.
X~N(0.2,0.445)
P(X 0)
= 0.810418358

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Q&A
thanks for listening!

Love to Excel
Don't strive to be perfect. Strive for excellence.
Victoria Principal

Love to Excel
PRESENTATION 4

calvin houng |christopher chien | clement thiang |


glen tan | tham wan yi

Question 5
parts I & II

Love to Excel
An absolute can only be given in an intuition, while all the rest has to do with
analysis. Henri Bergson

Question 5
I) Let X be the number of hours at which the device fails at.
X ~ Exponential (0.02)
=

0.02

E(X) =

50

P(X 25) =
P(X 100) =

0.39346934
0.135335283

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Question 5
II) Let X be the customer service time.
X ~ Exponential (0.360)
=

0.35971223

P(X 2) =
P(X 5) =
P(X 2.78) =

0.512967518
0.1655369
0.367879441

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Q&A
thanks for listening!

Love to Excel
Don't strive to be perfect. Strive for excellence.
Victoria Principal