QMB FL. Chap 03

CMA: Quantitative Methods For Business
Lecturer Name: Mr.Ananth
Subject No : FL 4
Contents
No Topic
1 Basic mathematics for business
2 Frequency distributions and presentation of data
3 Probability and sampling theory
4 Statistical inference
5 Relationship techniques
6 Introduction to financial mathematics
Appendix a
Chapter 03.
Frequency Distributions and Presentation of Data
At the end of this chapter the candidate will be able to
• describe the concept of probability.
• describe the relevant concepts/ laws of probability.
• apply laws and associated techniques of probability.
• explain the concepts of random variables and probability
distributions
• solve simple problems involving the normal distribution.
• describe the t-distribution.
• describe the role of samples in understanding populations. •
explain pitfalls in sampling.
• Describe and compare different sampling methods.
Quantitative Methods For Business : Chapter 03
Probability and
Sampling Theory
Introduction to Probability
Probability is a concept that most people understand naturally, since words such as
“chance”, “likelihood”, “possibility” and “proportion” (and indeed probability itself) are
used as part of everyday speech. For example, most of the following, which might be
heard in any business situation, are in fact statements of probability:
• There is a 30% chance that this job will not be finished in time.
• There is likelihood that the business will make a profit next year.
• Nine times out of ten he arrives late for his appointments.
• There is no possibility of delivering the goods before Tuesday.
All the above are expressions indicating a degree of uncertainty. A very important branch
of mathematics called the theory of probability provides a numerical measure of
uncertainty. The probability describes certainty by1, impossibility by 0 and the various
grades of uncertainties by fractions or decimals in between 0 and 1. For example,
probability of drawing any number from 1 to 6by throwing a die is 1. But the probability
that the number 7 appears from the die is 0. If the die is a fair die, the probability of
getting number 4 (or any given value from 1 to 6) is 1/6 which is between 0 and 1.
Random Experiment
An experiment is any repeatable process, from which an outcome, measurement or

result is obtained. When the outcomes cannot be predicted with certainty, then the
experiment is a random experiment.
Examples
1. Throwing a die.
2. 2. Tossing of a coin.
3. 3. Inspection of an item to determine whether it is defective or non-defective.
Sample Space
An experiment can result in several possible outcomes. For example,
a) One toss of a coin results in the outcomes (H, T). If the coin is fair, then each
outcome is equally likely.
b) b) Two tosses of a coin result in the outcomes (HH, HT, TH, TT). Again, if the coin is
fair, then each outcome is equally likely.
c) c) If a machine produces articles, some of which are defective, the outcomes are
d) (defective, or not defective). In this case the outcomes may not be equally likely.
Each possible outcome is called a sample point and the set of all possible outcomes is
the sample space 𝑆. An event is a specific collection of sample points. For example, for
one throw of an ordinary die the sample space is 𝑆 = (1, 2, 3, 4, 5, 6). Let 𝐸 be the event
"the number is odd", then 𝐸 = (1, 3, 5).
Approaches to Probability
In this section, we discuss three approaches to the definition and interpretation of
probability: Classical approach, relative frequency approach, and subjective
approach.
Classical Approach
If a random experiment results in mutually exclusive and equally likely outcomes

and more favourable to the occurrence of event 𝐴, then the probability of
occurrence of event 𝐴, usually denoted by 𝑃(𝐴) is given by
Example
Let 𝐴 : Getting an even number from a die
The Relative Frequency Approach
Example
Let 𝐴: Tomorrow will be a rainy day given that there were 15 rainy days during last 60
days until today.
Subjective Approach
The Subjective probability is defined, as the probability assigned to an event by an

individual based on whatever evidence is available. Hence such probabilities are
based on the knowledge, experience, beliefs of the person making the probability
statements.
Example
A lawyer decides that the chance of winning the case of his customer in courts would
be 75% according to the currently available evidence.
Exercise
Calculate the probability of observing at least one head in a toss of two coins.
Solution
Construct the sample space letting H represent a head, T a tail.
Let 𝐴: Observed at least one head.
The number 𝑃(𝐸𝑖 )is called the probability of event𝐸𝑖 of the sample space if
i. 0 ≤ 𝑃(𝐸𝑖 ) ≤ 1
ii. ∑ 𝑃(𝐸𝑖 𝑆 ) = 1
Thus, we require that a probability be greater than or equal to 0 and less than or equal
to 1 and that the sum of the probabilities over the entire sample space, S, be equal to
1.
Compound Events
Let 𝐴 and 𝐵 be two events in a sample space. The union of 𝐴 and 𝐵 is defined to be
the event containing all sample points in 𝐴 or 𝐵 or both. We denote the union of 𝐴
and 𝐵 by the symbol 𝐴 ∪ 𝐵. The intersection of 𝐴 and 𝐵 is the event composed of all
sample points that are in both A and B and is denoted by 𝐴 ∩ 𝐵. The union and the
intersection of 𝐴 and 𝐵 are shown diagrammatically as shaded areas in following
figures.
The Additive Law of Probability
The probability of a union is equal to: 𝑃(𝐴 ∪ 𝐵) = 𝑃(𝐴) + 𝑃(𝐵) − 𝑃(𝐴 ∩ 𝐵)
If 𝐴 and 𝐵 are mutually exclusive, 𝑃(𝐴 ∩ 𝐵) = 0. That is, if 𝐴 and 𝐵 are mutually exclusive,
they do not share common elements.
Therefore, 𝑃(𝐴 ∪ 𝐵) = 𝑃(𝐴) + 𝑃(𝐵).
Example
In a group of 20 adults, 4 out of 7 women and 2 out of 13 men wear glasses. What is
the probability that a person chosen at random from a group is a woman or someone
who wear glasses?
Let 𝐴 be the event "the person chosen is a woman" and 𝐵 be the event " the person
chosen wears glasses".
The Complement of an Event

Example
A card is drawn from an ordinary pack of 52 playing cards. Find the probability that the
card is not a seven.
Conditional Probability
𝐴 and 𝐵 are two events. The probability of 𝐴, given that 𝐵 has already occurred is
written𝑃(𝐴|𝐵) and is computed by
Example
Given that a heart is picked at random from a pack of 52 playing cards, find the
probability that it is a picture card.
Let 𝐴 be the event "a heart is drawn", 𝐵 be the event "a picture card is drawn".
Independent Events
Two events 𝐴 and 𝐵 are said to be independent, if and only if 𝑃( 𝐴| 𝐵) = 𝑃( 𝐴) or 𝑃( 𝐵| 𝐴)
= 𝑃(𝐵). Otherwise the events are said to be dependent.
The Multiplicative Law of Probability
Given two events 𝐴 and 𝐵, the probability of the intersection is 𝑃(𝐴 ∩ 𝐵) = 𝑃( 𝐴). 𝑃( 𝐵).
Example
A die is thrown twice. Find the probability of obtaining a 4 on the first throw and an
odd number on the second throw.
Tree Diagrams
A tree diagram can be used to find the elements of the sample space. For example, if
we toss a coin, then the possible outcomes of the experiment are head and tail. This
information can be shown as follows.
This is called a tree diagram. The sample space is 𝑆 = { 𝐻, 𝑇}.
Examples
1) Three coins are tossed. What is the probability of obtaining 2 heads? Find it
using a tree diagram
The tree diagram will be as shown below.
𝑛(𝑆) = 8
Let 𝐴 be the event that two heads are obtained.
A bag contains 5 red marbles, 3 blue marbles and 2 green marbles. One
2)
marble is drawn at random from the bag and replaced, and then a second
marble is drawn from the bag. Find the probability of obtaining the following
events using a tree diagram.
i. Both marbles are red.

ii. Two marbles are of different colours.
iii. First marble is blue.
iv. Second marble is green.
v. One marble is red.
vi. Second marble is red, given that the first marble is green.
The tree diagram will be as shown below.

𝑛(𝑆) = 9
Proportion Tables (Karnaugh Maps)

If a random variable has a sample space of 𝑛 equally likely outcomes, then the
sample space 𝑆 can be split into four mutually exclusive subjects:
Examples
We can write the data in the form of a probability table:
Baye'sTheorem
Example
In recent years, much has been written about the possible link between cigarette
smoking and lung cancer. Suppose that in a large medical centre, of all the smokers who
were suspected of having lung cancer, 90% of them did, while only 5%of the non-
smokers who were also suspected of having lung cancer actually did. If the proportion
(probability) of smokers is 0.45, what is the probability that a lung cancer patient who is
selected by chance is a smoker?
Random Variables
The numerical outcomes of experiments vary from one experiment to another and
therefore represent observations on a variable which we will denote by the symbol 𝑥. A
variable 𝑥 is a random variable if the values that 𝑥 assumes, corresponding to the various
outcomes of an experiment, are chance or random events. Random variables are
classified as one of two types: discrete or continuous. A discrete random variable is one
that can assume a countable number of values. Typical examples of discrete random
variables are,
a) The number of defective bolts in a sample of ten drawn from industrial production.
b) b) The number of people in a waiting line for banking services.
A continuous random variable is one that can assume the infinitely large number of
values corresponding to the points on a line interval. Typical examples of continuous
random variables are,
a) The amount of gasoline produced per day in a refinery.
b) b) The waiting time before service at a supermarket counter.
Probability Distributions for Discrete Random Variables
The probability distribution for a discrete random variable is a formula, table or graph
that provides the probability associated with each value of the random variable. It is
interesting to note that the events cannot overlap because one and only one value of x
is assigned to each sample point; therefore, the values of x represent mutually exclusive
numerical events. We may therefore state two requirements for a probability
distribution
1) 0 ≤ 𝑃(𝑥) ≤ 1
2) 2) ∑ 𝑃(𝑥) = 1 for all �
Examples
1) Consider an experiment that consists of tossing two coins and let 𝑥be the
number of heads observed. Find the tabulated probability distribution for 𝑥.
Observe that the probability distribution of 𝑥 in the above table can be represented
graphically as follows.
If you were to draw a sample from this population that is, if you were to throw two
balanced coins, say 𝑥 = 100 times, and each time record the number of heads
observed, then construct a histogram using the 100 measurements. You would find the
histogram of your sample would appear very similar to that for P(x).
Mathematical Expectation
The probability distribution provides a model for the theoretical frequency distribution of
a random variable and hence must possess a mean, variance, standard deviation and
other descriptive measures associated with the theoretical population that it represents.
We shall confine our attention to the problem of calculating the mean value of a random
variable defined over a theoretical population. This mean(𝜇) is called the expected
value,𝐸(𝑋)of the random variable. Let 𝑥 be a discrete random variable with probability
distribution 𝑃(𝑥) and let 𝐸(𝑥) represent the expected value of 𝑥. Then,
Examples
Consider the random variable 𝑥 representing the number of heads on the toss of two
coins. Find the expected value of 𝑥.
Hence, if you repeat the experiment an infinite number of times, the average number
of heads on tossing the coin twice, would be one.
2) Eight thousand tickets are to be sold at Rs. 20.00 each in a lottery conducted to
benefit the local school. The prize is a Rs. 52,000.00 valued mobile phone. If you
purchase two tickets, what is your expected gain?
Here, either you will lose Rs. 40.00 or will win Rs. 51,960.00 (= 52,000- 40) with
probabilities 7998/8000 and 2/8000 respectively. The expected gain will be,
Variance
Moreover, 𝜎 is called the standard deviation of 𝑥.
Example
Probability Distributions for Continuous Random Variables
We need to take a different approach to find the probability distribution for a continuous
random variable. The relative frequency associated with a particular class in the population
is the fraction of measurements in the population falling in that interval; it is also the
probability of drawing a measurement in that class. If the total area under the relative
frequency histogram were adjusted to be equal to 1, then the area under the frequency
curve would correspond to probabilities. Assume that the random variable, 𝑥, may take
values on a real line. The density of probability (but not the value of the probability), which
varies with 𝑥 may be represented by a mathematical expression 𝑓(𝑥), called the probability
distribution (or the probability density function) for 𝑥. The density function 𝑓( 𝑥) is defined
so that the total area under the curve is equal to 1 and therefore, the area lying above a
given interval of values will be equal to the probability that 𝑥 will fall in that interval.
Therefore, the probability that 𝑎 < 𝑥 < 𝑏 is equal to the shaded area under the density
function, 𝑓(𝑥) between the two points 𝑎 and 𝑏.
The Normal Distribution

The normal distribution is the most important and most widely used continuous
probability distribution. It is the cornerstone of the application of statistical inference in
analysis of data. This
distribution has also been used to study random phenomena ranging from the applied
sciences and engineering to business and economics. The normal probability distribution is
the bell-shaped curve as shown in the following figure. The distribution is symmetric about
the mean.
Since the area lying over any particular point, say 𝑥 = 𝑎, is 0, it follows that 𝑃( 𝑥 = 𝑎) = 0.
This means that 𝑃(𝑥 ≤ 𝑎) = 𝑝(𝑥 < 𝑎) and 𝑝(𝑥 ≥ 𝑎) = 𝑝(𝑥 > 𝑎). This is, of course, not true for a
discrete random variable.
Examples
1) Find 𝑃(0 ≤ 𝑧 ≤ 1.63)
This probability corresponds to the area between the mean (𝑧 = 0) and a point. 𝑧 = 1.63
standard deviations to the right of the mean. This area is shaded in the following figure.
2) Find 𝑃(−0.5 < 𝑧 < 1.0).
This probability corresponds to the area between 𝑧 = −0.5 and 𝑧 = 1.0 as shown in the
following figure.
3) Studies show that gasoline usage for compact cars sold is normally distributed with a
mean usage of 30.5 miles per gallon (mpg) and a standard deviation of 4.5 mpg. What
percentage of compacts obtain 35 or more miles per gallon?
The area to the right of the mean corresponding to 𝑧 = 1.0 is 0.3413. The entire area to the
right of the mean is 0.5. Thus,
𝑃(𝑥 > 35) = 𝑃(𝑧 > 1.0) = 0.5 − 0.3413 = 0.1587
Thus, the percentage exceeding 35 mpg is 15.87%.
4) In the previous example, if the manufacturer wants to develop a compact car which
outperforms 95% of the current compacts in fuel economy, what must be the
gasoline usage for the new car?
The Student’s t-Distribution
The shape of the t-distribution is characterized by a parameter namely, degrees of
freedom. Larger the degrees of freedom, closer the 𝑡-distribution into the standard normal
distribution. The 𝑡- distribution is mainly used in statistical inference methods of
estimating and testing population mean when population standard deviation is unknown.
Sampling Theory
Census & Sampling Investigations
The need for adequate and reliable data is ever increasing for taking policy decisions in
different fields of human activity. There are two ways in which the required information
may be obtained: Census and Sampling.
Census
Under complete enumeration survey method, data are collected for each and every unit
(person, household, field, shop, factory etc.) of the population or universe, which is the
complete set of items (sampling frame), which are of interest in any particular situation.
The advantage of this type of survey will be that no unit is left out and hence greater
accuracy may be ensured. However, the effort, money and time required for carrying out
complete enumeration will generally be extremely large and
in many cases cost may be so prohibitive that the very idea of collecting information
may be dropped. Hence, in modern times very little use is made of complete
enumeration survey.
Example
The government of Sri Lanka conducts a census once in ten years where every
household is surveyed.
Sampling
Very often our attitudes, our knowledge and our actions are based on samples. It applies
equally to everyday life and to scientific research. A person's opinion of a bank, or a shop,
or an institution is generally based on one or two encounters, which he had with it in the
course of several years of working with the former. A visitor's opinion about a country after
spending a few days in it will be determined by his experiences of a few places he has seen
and a few persons he has met. Perhaps our visitor is less likely to be aware of the extent of
his ignorance. Generally, a vaguely formulated understanding of sampling is part of what is
called common sense and is characteristic of everyday approach.
Examples
i. A trader examining a handful of grains from the bag

ii. A tea taster trying different brands of tea
iii. A technician making a blood test
All of them are employing the method of sampling. Their confidence in their judgements
rests on the fact that the material they are sampling is so well mixed or homogeneous that
the few grains of wheat, a drop of blood, a few leaves of tea or a few grains of rice do
adequately represent the whole.
Reasons for Sampling

The following reasons generally cause for using a sample rather than the entire
population.
• The destructive nature of certain tests To test the quality of light bulbs, manufacturers
test the life time of bulbs by lightening them until a bulb is burned out. To ensure that the
production meets the minimum standard, a relatively small sample of bulbs is selected.
• The physical impossibility of checking all items in the population The populations of fish,
birds, snakes, mosquitoes, and the like are large and are constantly moving, being born,
and dying.
• The cost of studying all the items in a population is often prohibitive
• Greater Speed
The data can be collected and summarized more quickly with a sample than with a
complete count. This is as a vital consideration when the information is urgently needed.
• Greater Scope In certain types of inquiry highly trained personnel or specialized

equipment limited in availability, must be used to obtain the data. A complete census is
impracticable. The choice lies between obtaining the information by sampling or not at all.
Thus, surveys that rely on sampling have more scope and flexibility regarding the types of
information that can be obtained.
• Greater Accuracy In sampling, high quality personnel can be employed and intensive
training can be given to them. Careful supervision of the fieldwork can also be done.
Accurate processing of results is also possible when the volume of work is reduced. Thus, a
sample may produce more accurate results than a census.
Sampling and Non-Sampling Errors
The error arising due to drawing inferences about the population on the basis of few
observations (sampling) is termed sampling error. Clearly the sampling error in this sense is
non existent in a complete enumeration survey, since the whole population is surveyed.
However, the errors mainly arising at the stages of ascertainment and processing of data,
which are termed non-sampling errors, are common both in complete enumeration and
sample surveys.
Sampling Errors
Even if utmost care has been taken in selecting a sample, the results derived from a
sample study may not be exactly equal to the true value in the population. The reason is
that an estimate is based on a part and not on the whole and samples are seldom, if ever,
perfect miniatures of the population. Hence sampling gives rise to certain errors known as
sampling errors (or sampling fluctuations). These errors would not be present in a
complete enumeration survey. However, these errors can be controlled. The modern
sampling theory helps in designing the survey in such a manner that the sampling errors
can be made small.
Method of Reducing Sampling Errors Once the absence of bias has been ensured, attention
should be given to the random sampling errors. Such errors must be reduced to the
minimum so as to attain the desired accuracy. Apart from reducing errors of bias, the
simplest way of increasing the accuracy of results from a sample is to increase its size. The
sampling error usually decreases with the increase in sample size (number of units
selected in the samples) and in fact in many situations the decrease is inversely
proportional to the square root of the sample.
Non-Sampling Errors
When a complete enumeration of units in the universe is made, one would expect that it
would give rise to data free from errors. However, in practice it is not so. For example, it is
difficult to completely avoid errors of observation or ascertainment. So also in the
processing of data tabulation errors may be committed affecting the final results. Errors
arising in this manner are termed non-sampling errors, as they are due to factors other
than the inductive process of inferring about the population from a sample. Thus, the
data obtained in an investigation by complete enumeration, although free from sampling
error, would still be subject to non-sampling errors, whereas the results of a sample
survey would be subject to sampling errors as well as non-sampling errors. Non-sampling
errors can occur at every stage of planning and execution of the census or survey. Such
errors can arise due to a number of causes such as defective methods of data collection
and tabulation, faulty definition, incomplete coverage of the population or sample, etc.
More specifically, non-sampling errors may arise from one or more of the following
factors.
• Inaccurate or inappropriate statistical units, methods of interview, observation or
measurement with inadequate or ambiguous schedules, definitions or instructions.
• Errors in data processing operations such as coding, punching, verification,
tabulation, etc.
• Errors committed during presentation and printing of tabulated results.
These sources are not exhaustive, but are given to, indicate some of the possible sources
of error. In a sample survey, non-sampling errors may also arise due to a defective frame
and faulty selection of sampling units.
Methods of Sampling There are many methods of sampling. The choice of method will
be determined by the purpose of sampling. The various methods can be categorized
under two groups
• Probability Sampling (Random Sampling)
• Non-Probability Sampling (Non-random Sampling)
Probability Sampling Methods
A sample selected in such a way that each item or person in the population being studied
has a known probability of being included in the sample. The sampling error also can be
measured here. In this chapter, four probability-sampling methods are presented.
Simple Random Sampling

A sample is selected here so that each item or person in the population has the same
chance of being selected, and also, selecting n units out of the 𝑁 such that every one of
the 𝐶𝑛 𝑁 distinct samples has an equal chance of being drawn. In practice, a simple
random sample is drawn unit by unit. The units in the population are numbered from 1
to 𝑁. A series of random numbers between 1 and 𝑁 is then selected, either by means
of a table of random numbers or by means of a computer program that produces such
numbers or by means of lottery method.
Stratified Random Sampling
When the population is heterogeneous with respect to the variable or characteristic under
study, the method of simple random sampling may not be appropriate. In such situations,
first the population is divided into a number of subgroups called strata. These strata are
internally homogeneous. Then a simple random sample is drawn from each stratum. Some
of the commonly used stratifying factors are age, sex, educational or income groups,
geographical area, economic status and so on. The following factors can be considered to
determine the number of sampling units from each stratum
• Relative Importance
• Relative Variability
• Unit sampling cost
• Relative size
When first three factors are equal among each stratum, the method of proportional
allocation is used to select a sample.
Systematic Sampling When a systematic sample is selected, it is also known as

quasi-random sampling. When a complete list of the population is available, this
method is used. We arrange the items in numerical, alphabetical, and geographical
or any other order. If we want to select a sample of 10 students from 120 students,
under this method kth item is picked up from the sample frame and 𝑘 is the
sample interval.
Cluster Sampling /Multistage Sampling Cluster sampling is another method of sampling
with widespread applications in survey designs. This method involves, first the separation
of the population into groups called clusters and then the
selection of a sample of these clusters can occur. After that, the observations or
measurements are made on each and every unit in the selected clusters. Even though
cluster sampling needs relatively low operational costs, it requires a larger sample size
than that of simple random sampling to provide estimates with a specified level of
precision. Since it seems uneconomical to measure all the sampling units in the selected
clusters, instead of enumerating all the units, one can obtain a sample of units by
resorting to sub sampling within any chosen cluster. This technique is called two-stage
sampling, clusters being termed as primary units and the units within clusters as
secondary units. Multi-stage sampling is the generalization of the above technique.
Example
It is decided to take a sample of 5,000 households from the Western province.
First stage:
The province may be divided into a number of districts and a few districts selected at
random.
Second stage:
Each district may be sub-divided into towns and a sample of towns may be taken at
random.
Third stage:
A number of households may be selected from each of the towns selected at the second
stage.
In this way, at each stage the sample size becomes smaller and smaller.
Non-Probability
Sampling There are situations where it is not possible or it is very inconvenient to design
methodologies that maintain equal chances for every member in the population of being in
the selected sample. Sample methods designed to handle such situations are referred to as
non-probability sampling methodologies.
Judgment Sampling
In judgment sampling the choice of sample items depends exclusively on the discretion of
the investigator. In other words, the investigator exercises his judgment in the choice and
includes those items in the sample, which he thinks are most typical of the population with
regard to the characteristics under investigation.
Convenience Sampling
The method of convenience sampling is also called the chunk. A chunk refers to that
fraction of the population being investigated which is selected neither by probability nor
judgment but by convenience. A sample obtained from readily available lists such as
automobile registration, telephone directories, etc. is a convenience sample and not a
random sample even if the sample is drawn at random from the lists
Quota Sampling
Quota sampling is a non-probability sampling technique wherein the assembled sample
has the same proportions of individuals as the entire population with respect to known
characteristics, traits or focused phenomenon. The researcher must make sure that the
composition of the final sample to be used in the study meets the research's quota
criteria. The main reason why researchers choose quota samples is that it allows the
researchers to sample a subgroup that is of great interest to the study.
Chapter 3 - Reinforcement Problems
1) Consider the following experiment involving two urns. Urn A contains 2 white balls
and 1 black ball. Urn B contains 1 white ball. A ball is drawn from urn A and placed in
urn B. Then a ball is drawn from urn B. What is the probability that the ball drawn
from urn B will be white?
2) A coin is tossed and a die is thrown. What is the probability of obtaining a head on the
coin and an even number on the die?
3) The two events 𝐴 and 𝐵 are such that 𝑃(𝐴) = 0.6, 𝑃(𝐵) = 0.2, 𝑃(𝐴/𝐵) = 0.1. Calculate
the probabilities that,
a. Both of the events occur.
b. At least one of the events occurs.
c. B occurs, given that A has occurred.
4) Two coins are tossed. Using a tree diagram find the probability of obtaining:
a. 2 tails
b. Exactly one head
c. At least one head
5) Two coins are tossed. One coin is unbiased, and the other is biased so that a head is twice as
likely as a tail. Find the probability of obtaining,
a. Two heads
b. A head and a tail
c. Two tails, using a tree diagram
6) A box contains 5 white, 4 blue, and 5 red marbles. One marble is drawn at random and
returned to the box; a second marble is then drawn. Using a tree diagram find the probability
of drawing a blue and a red marble in that order.
7) A has a probability of ¾ of winning a set against B. A match is won by the player who first
wins
two sets. Use a tree diagram to find the probability that A wins the match.
8) As items come to the end of a production line, an inspector chooses which items are to
go
through a complete inspection. 10% of all items produced are defective. 60% of all defective
items go through a complete inspection, and 20% of all good items go through a complete
inspection. Given that an item is completely inspected, what is the probability it is
defective?

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CMA: Quantitative Methods For Business

Lecturer Name: Mr.Ananth

1 Basic mathematics for business

2 Frequency distributions and presentation of data

3 Probability and sampling theory

6 Introduction to financial mathematics

An experiment is any repeatable process, from which an outcome, measurement or

If a random experiment results in mutually exclusive and equally likely outcomes

The Subjective probability is defined, as the probability assigned to an event by an

The probability of a union is equal to: 𝑃(𝐴 ∪ 𝐵) = 𝑃(𝐴) + 𝑃(𝐵) − 𝑃(𝐴 ∩ 𝐵)

Therefore, 𝑃(𝐴 ∪ 𝐵) = 𝑃(𝐴) + 𝑃(𝐵).

The Complement of an Event

The Multiplicative Law of Probability

This is called a tree diagram. The sample space is 𝑆 = { 𝐻, 𝑇}.

i. Both marbles are red.

The tree diagram will be as shown below.

Proportion Tables (Karnaugh Maps)

The Normal Distribution

𝑃(𝑥 > 35) = 𝑃(𝑧 > 1.0) = 0.5 − 0.3413 = 0.1587

Thus, the percentage exceeding 35 mpg is 15.87%.

i. A trader examining a handful of grains from the bag

Reasons for Sampling

• Greater Scope In certain types of inquiry highly trained personnel or specialized

Simple Random Sampling

Systematic Sampling When a systematic sample is selected, it is also known as

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