TO 502 2013 Practice Quiz 1.

TO OMS
502: 502: Business
Applied Business Statistics
Statistics
Practice Quiz Module 1 Set (C) (Adapted from 2007 Module 1 Quiz)
(Probability, Random Variables, Binomial and Normal Distributions)

This quiz is open book and notes, but you must do your own work and not give or accept help from
anybody. The quiz is designed to take two and a half hours, but we are not enforcing this time limit.
Take as long as you require to do a good job, but use that estimated time as a measure of how well
you might do on similar questions on the timed (and enforced) final exam. We expect a student who
is well prepared will finish the exam approximately within 2 hours and 30 minutes, and correctly solve
about 85% to 90% of the problems.

Four hundred companies whose stocks are traded on the New York Stock Exchange were re-
searched. Each company was given a credit rating of either A, B or C. Also, each company was
classified based on whether or not it was profitable in the last fiscal year. Based on the relative
frequencies of the data, the following probability table was constructed. Use this table to answer
Questions 1 to 5.

Credit rating
A B C
Profitable 0.42 0.26 0.12 0.80
Unprofitable 0.02 0.05 x 0.20
0.44 0.31 0.25

1. What is the probability that a randomly selected company was profitable in the last fiscal year?

(a) 0.20
(b) 0.25
(c) 0.50
(d) 0.80

1
2. What is the probability that a randomly selected company was unprofitable in the last fiscal year
AND rated C?

(a) 0.12
(b) 0.13
(c) 0.20
(d) 0.25

3. What is the probability that a randomly selected company was awarded a credit rating of either
A or B?

(a) 0.25
(b) 0.31
(c) 0.44
(d) 0.75

4. A company was randomly selected and found to be profitable in the last fiscal year. Given this
information, what is the probability that the company had a credit rating of C?

(a) 0.12
(b) 0.15
(c) 0.16
(d) 0.25

5. Of the 400 companies surveyed, how many must have been unprofitable in order to arrive at the
probabilities listed in the table above?

(a) 80
(b) 100
(c) 200
(d) 320

2
 A jar contains 8 red marbles, 4 blue marbles and 6 green marbles. Each time you draw out a
marble, you record the outcome and put it back in the jar before making another draw. Use this
description to answer Questions 6 to 9, selecting the choice that is closest to the answer.

6. What is the probability that you get exactly this sequence: blue - green - green (in that order,
one blue followed by two greens)?

(a) 0.016
(b) 0.025
(c) 0.033
(d) 0.037

7. Your friend drew three marbles, and told you that the second draw was a red marble. Given this
information, what is the probability that the other two marbles were also both red?

(a) 0.088
(b) 0.198
(c) 0.444
(d) 0.888

8. Your friend drew two marbles, and tells you that one draw was red and the other draw was green.
What is the probability that the first draw was red?

(a) 0.429
(b) 0.444
(c) 0.500
(d) 0.571

3
 9. You draw two marbles. What is the probability that exactly one of those draws will be a red
marble?

(a) 0.444
(b) 0.494
(c) 0.500
(d) 0.691

A random variable X takes three possible values: 1, 0 and 1. The probabilities of the three
values are 0.4, 0.4 and 0.2 respectively. Use this information to answer Questions 10 to 11
below.

10. What is the expected value of X?

(a) 0.2
(b) 0.1
(c) 0.0
(d) 0.2

11. What is the variance of X?

(a) 0.00
(b) 0.31
(c) 0.56
(d) 0.75

4
 The random variable X has mean 3 and standard deviation 2. The random variable Y has mean
3 and standard deviation 4. The two random variables are independent. Use this information
to answer Questions 12 to 15 below.

12. What is the mean of X + Y ?

(a) 3
(b) 0
(c) 3
(d) 6

13. What is the standard deviation of 2X Y ?

(a) 4.90
(b) 5.66
(c) 24.00
(d) 32.00

14. Let 1 be the standard deviation of 4X, and 2 be the standard deviation of 2Y . Which of the
following is true?

(a) 1 < 2
(b) 1 = 2
(c) 1 > 2
(d) None of the above is always true

5
15. Let X1 , X2 , . . . , X10 be 10 independent draws from X. What is the standard deviation of X1 +
X2 + . . . + X10 ?

(a) 6.32
(b) 12.65
(c) 20.00
(d) 40.00

As a senior corporate finance officer of the worlds largest fashion company, Papaya Republic, you
are uncertain about the revenue from sales your company will make next year, since it depends
on several random factors such as the state of the economy, consumer sentiment, weather, fashion
trends, etc. You believe the total revenue next year can be modeled as a random variable which
follows a normal distribution, with mean $4.5 billion and standard deviation $1.0 billion. Use
this information to answer Questions 16 to 19 below.

16. Wall Street expects your company to make a revenue of $4.0 billion next year. What is the
probability that this expectation will be met?

(a) 0.159
(b) 0.309
(c) 0.691
(d) 0.841

6
17. Your companys gross profit margin is 18%. That is, for every dollar in revenue, your profit is
18 cents (the remaining 82 cents are your costs). What is the expected value of your companys
gross profit next year, in billions of dollars?

(a) 0.15
(b) 0.18
(c) 0.66
(d) 0.81

18. What is the 5th percentile of the companys revenue from sales? That is, your company has a
95% chance of obtaining revenues exceeding what value?

(a) $2.54 billion

19. There is a 90% chance of your companys revenue being in which of the following ranges, in
billions of dollars?

(a) 2.86 to 6.14

7
20. Let Z be the standard normal distribution. Which of the following is true?

(a) P (Z < 1) < P (Z > 0.5)

21. Let Z be the standard normal distribution. Which of the following probabilities is the largest?

(a) P (Z < 1.5)

22. Let Z be the standard normal distribution, and let X be normally distributed with mean 2 and
standard deviation 1. Which of the following is equal to P (Z < 2)?

(a) P (X < 0)
(b) P (X < 2)
(c) P (X < 4)
(d) P (X < 6)

8
 Eldrick Tiger Woods is arguably the worlds best golfer. Since 1996, he has won 81 tournaments
including 59 PGA wins and 13 major golf championships. In addition to his professional career, he
has been actively involved in a number of charitable causes through the Tiger Woods Foundation.
Tiger, along with a corporate partner, Cisco, is holding a charity event during which he is going
to demonstrate his accurate iron shot by landing the ball in the Cisco Zone. In order to land
in the Cisco Zone, the ball must fly between 120 and 126 yards from the tee, and within 3
degrees from the center (see Figure 1 for description). With a 9-iron, the chance that Tiger will
land a ball in the Cisco Zone is 80%. It is also known that successive shots are independent of
each other. Use this information to answer Questions 23 to 27 below.

23. If Tiger hits 30 shots with his 9-iron, what is the probability that 20 or more will land in the
Cisco Zone?

(a) 0.026
(b) 0.061
(c) 0.939
(d) 0.974

24. Every time a ball lands in the Cisco Zone, Cisco will donate $20,000 to the charity. If Tiger hits
50 iron shots with his 9-iron, what is the expected amount of money that Cisco will donate?

(a) $ 40.0K
(b) $ 400.0K
(c) $ 800.0K
(d) $ 1000.0K

25. Every time a ball lands in the Cisco Zone, Cisco will donate $20,000 to the charity. If Tiger hits
50 iron shots with his 9-iron, what is the standard deviation of Ciscos donation?

(a) $ 40.0K
(b) $ 56.6K
(c) $ 1600.0K
(d) $ 3200K

9
 Distance: D N (124, 3) (yard)

Cisco Zone between 120 and 126 yards

within 3 degrees

Angle: A N (0, 2) (degree)

Figure 1: Tiger Woods; Questions 23 to 27.

Fearful of donating too much money, Cisco has asked Tiger to use a 7-iron club instead of a 9-iron.
With a 7-iron, the exact distance (from the tee) that Tigers ball flies is assumed to be normally
distributed with mean 124 yards and standard deviation 3 yards, and the angle (from the center)
is assumed to be also normally distributed with mean 0 degrees and standard deviation 2 degrees,
with successive shots independent of each other. (See the enclosed figure for illustration.) It is
further assumed that distance and angle are independent of each other, and that the ball will not
bounce or roll.

26. What is the probability that Tiger will land his first shot in the Cisco Zone with his 7-iron?

(a) 0.569
(b) 0.656
(c) 0.698
(d) 0.866

27. Every time a ball does not land in the Cisco Zone, Tiger Woods will donate $10,000 from his own
pocket. If Tiger hits 50 iron shots with his 7-iron, how much do you expect Tiger to donate?

(a) $100.8K
(b) $184.6K
(c) $215.7K
(d) $300.4K

10
 McDonalds offers Happy Meals for children, in which the package includes a toy. There are
currently two types of toys offered: cars and dolls. The chance that a randomly chosen customer
will receive a Happy Meal with a car is 40%. A toy in each Happy Meal is independent of toys in
other Happy Meals. Suppose you buy a total of 5 Happy Meals. Use this information to answer
Questions 28 to 30 below.

28. What is the expected number of dolls that you find?

(a) 2.0
(b) 2.5
(c) 3.0
(d) 3.5

29. What is the probability that you find at least 2 cars?

(a) 0.230
(b) 0.337
(c) 0.346
(d) 0.663

30. The first 4 Happy Meals you open all contain cars. What is the probability that the fifth Happy
Meal also contains a car?

(a) 0.0
(b) 0.4
(c) 0.5
(d) 1.0

11