Combined Practice Problems (Topic 3.

1 and 4)
(Normal Distribution and Sampling Distribution)

Q1.

The College Board reported the following mean scores for the three parts of the Scholastic
Aptitude Test (SAT) (The World Almanac, 2009):
Critical Reading: 502
Mathematics: 515
Writing: 494
Assume that the population standard deviation on each part of the test is σ = 100.
a. What is the probability that a random sample of 90 test takers will provide a sample mean
test score within 10 points of the population mean of 502 on the Critical Reading part of the
test?
b. What is the probability that a random sample of 90 test takers will provide a sample mean
test score within 10 points of the population mean of 515 on the Mathematics part of the test?
Compare this probability to the value computed in part (a).
c. What is the probability that a random sample of 100 test takers will provide a sample mean
test score within 10 of the population mean of 494 on the writing part of the test? Comment
on the differences between this probability and the values computed in parts (a) and (b).

Ans:
This value for the standard error can be used for parts (a)
and (b) below.

a. P(z ≤ .95) = .8289

P(z < -.95) = .1711

probability = .8289 - .1711 =.6578

b. P(z ≤ .95) = .8289

P(z < -.95) = .1711

probability = .8289 - .1711 =.6578

The probability of being within 10 of the mean on the Mathematics portion of

the test is exactly the same as the probability of being within 10 on the Critical
Reading portion of the SAT. This is because the standard error is the same in
 both cases. The fact that the means differ does not affect the probability
calculation.

c. The standard error is smaller here because the

sample size is larger.

P(z ≤ 1.00) = .8413

P(z < -1.00) = .1587

probability = .8413 - .1587 =.6826

The probability is larger here than it is in parts (a) and (b) because the larger
sample size has made the standard error smaller.

Q2.

In 2008 the Better Business Bureau settled 75% of complaints it received (USA Today, March
2, 2009). Suppose you have been hired by the Better Business Bureau to investigate the
complaints it received this year involving new car dealers. You plan to select a sample of new
car dealer complaints to estimate the proportion of complaints the Better Business Bureau is
able to settle. Assume the population proportion of complaints settled for new car dealers
is .75, the same as the overall proportion of complaints settled in 2008.
a. Suppose you select a sample of 450 complaints involving new car dealers. Show the
sampling distribution of p.
b. Based upon a sample of 450 complaints, what is the probability that the sample proportion
will be within .04 of the population proportion?
c. Suppose you select a sample of 200 complaints involving new car dealers. Show the
sampling distribution of p.
d. Based upon the smaller sample of only 200 complaints, what is the probability that the
sample proportion will be within .04 of the population proportion?
e. As measured by the increase in probability, how much do you gain in precision by taking
the larger sample in part (b)?

Ans:
a. Normal distribution with and

b. P(z ≤ 1.96) = .9750

 P(z < -1.96) = .0250

P(.71   .79) = P(-1.96  z  1.96) = .9750 - .0275 = .9500

c. Normal distribution with and

d. P(z ≤ 1.31) = .9049

P(z < -1.31) = .0951

P(.71   .79) = P(-1.31  z  1.31) = .9049 - .0951 = .8098

e. The probability of the sample proportion being within .04 of the population
mean was reduced from .9500 to .8098. So there is a gain in precision by
increasing the sample size from 200 to 450. If the extra cost of using the larger
sample size is not too great, we should probably do so.

Q3.

After deducting grants based on need, the average cost to attend the University of Southern
California (USC) is $27,175 (U.S. News & World Report, America’s Best Colleges, 2009
ed.). Assume the population standard deviation is $7400. Suppose that a random sample of 60
USC students will be taken from this population.
a. What is the value of the standard error of the mean?
b. What is the probability that the sample mean will be more than $27,175?
c. What is the probability that the sample mean will be within $1000 of the population mean?
d. How would the probability in part (c) change if the sample size were increased to 100?

Ans:
 = 27,175  = 7400

a.

b.

P( > 27,175) = P(z > 0) = .50

Note: This could have been answered easily without any calculations ; 27,175 is
the expected value of the sampling distribution of .
 c. P(z ≤ 1.05) = .8531

P(z < -1.05) = .1469

P(26,175   28,175) = P(-1.05  z  1.05) = .8531 - .1469 = .7062

d.

P(z ≤ 1.35) = .9115

P(z < -1.35) = .0885

P(26,175   28,175) = P(-1.35  z  1.35) = .9115 - .0885 = .8230

Q4.

A production process is checked periodically by a quality control inspector. The inspector

selects simple random samples of 30 finished products and computes the sample mean
product weights . If test results over a long period of time show that 5% of the values are over
2.1 pounds and 5% are under 1.9 pounds, what are the mean and the standard deviation for
the population of products produced with this process?

Ans:

Sampling distribution of

The area below = 2.1 must be 1 - .05 = .95. An area of .95 in the standard
normal table shows
z = 1.645.
Thus,
 So,

Q5.

A study of the investment industry claims that 58% of all mutual funds outperformed the
stock market as a whole last year. An analyst wants to test this claim and obtains a random
sample of 250 mutual funds. The analyst finds that only 123 of the funds outperformed the
market during the year. Determine the probability that another random sample would lead to
a sample proportion as low as or lower than the one obtained by the analyst, assuming the
proportion of all mutual funds that outperformed the market is indeed 0.58.

Ans:

The claim is that p = 0.58. We have n = 250 and x / n = 123/250 = 0.492.

P( .492) = P = P(Z < -2.819) = 0.0024

Q6.

An advertisement for Citicorp Insurance Services, Inc., claims “one person in seven will be
hospitalized this year.” Suppose you keep track of a random sample of 180 people over an
entire year. Assuming Citicorp’s advertisement is correct, what is the probability that fewer
than 10% of the people in your sample will be found to have been hospitalized (at least once)
during the year? Explain.

Ans:
p = 1/7

^
P( P < .10) = P
( Z<
.10−.143
)
√(1 /7 )(6 /7 )/180 = P(Z < 1.648) = 0.5  0.4503 =
0.0497, a low probability. The sample size, along with np and n(1 – p), are large
enough here that the sample distribution (over all the different samples of 180 people
in the population) of the proportion of people who get hospitalized during the year is
going to be pretty close to normal. Therefore, any one such sample proportion will be
close to the predicted mean 1/7 with reasonable probability, and 1/10 is far enough
 away from that mean given our estimated sample standard deviation that the
probability of falling even farther away than that from the mean is small.

Q7.

Wine Spectator rates wines on a point scale of 0 to 100. It can be inferred from the many
ratings in this magazine that the average rating is 87 and the standard deviation is 3 points.
Wine ratings seem to follow a normal distribution. In the May 15, 2007, issue of the
magazine, the burgudy Domaine des Perdrix received a rating of 89. What is the probability
that a randomly chosen wine will score this high or higher?

Ans:
Normal Distribution
Mean Stdev
87 3

P(X > 87) = P(Z > 0.667) = 0.5 – 0.2486 = 0.2516

Q8.

According to global analyst Olivier Lemaigre, the average price-to-earnings ratio for
companies in emerging markets is 12.5. Assume a normal distribution and a standard
deviation of 2.5. If a company in emerging markets is randomly selected, what is the
probability that its price-per-earnings ratio is above 17.5, which, according to Lemaigre, is
the average for companies in the developed world?

Ans:
Normal Distribution
Mean Stdev
12.5 2.5

P(X> 17.5) = P(Z > 2.0) = 0.5 – 0.4772 = 0.0228

Q9.
A quality-control analyst wants to estimate the proportion of imperfect jeans in a large
warehouse. The analyst plans to select a random sample of 500 pairs of jeans and note the
proportion of imperfect pairs. If the actual proportion in the entire warehouse is 0.35, what is
the probability that the sample proportion will deviate from the population proportion by
more than 0.05?

Ans:
p = μ = 0.35 σ = √(0.35)(0.65)/500 = 0.0213
^
P(|P − p|>0.05 ) = P( P
^ < 0.30) + P( P ^ > 0.40)

=P
(
Z<
0 . 30−0. 35
0 . 0213 ) (
+P
Z>
0 . 40−0 . 35
0 . 0213 )
= 1 – 2TA(2.344) = 0.0190

Q.10

Based on the research of Ibbotson Associates, a Chicago investment firm, and Prof. Jeremy
Siegel of the Wharton School of the University of Pennsylvania, the average return on large-
company stocks since 1920 has been 10.5% per year and the standard deviation has been
4.75%. Assuming a normal distribution for stock returns (and that the trend will continue this
year), what is the probability that a large company stock you’ve just bought will make in 1
year at least 12%? Will lose money? Will make at least 5%?

Ans:

Normal Distribution
Mean Stdev
10.5 4.75

a. P(X > 12) = P = P(Z > .316) = 0.50 – .1241 = .3759

b. P(X < 0) = P = P(Z < –2.211) = 0.50 – .4865 = .0135

a. P(X > 5) = P
( Z<
4 .75 ) = P(Z > –1.158) = 0.50 + .3766 = .8766
5−10.5

Q.11

The demand for high-grade gasoline at a service station is normally distributed with mean
27,009 gallons per day and standard deviation 4,530. Find two values that will give a
symmetric 0.95 probability interval for the amount of high-grade gasoline demanded daily.

Ans:
X ~ N(27,009, 4,5302)
z=
Interval: 27,009 (4,530) = [18,130.2, 35,887.8]

Q.12
Private consumption as a share of GDP is a random quantity that follows a roughly normal
distribution. According to an article in BusinessWeek, for the United States that was about
71%. Assuming that this value is the mean of a normal distribution, and that the standard
deviation of the distribution is 3%, what is the value of private consumption as share of GDP
such that you are 90% sure that the actual value falls below it?

Ans:
Let, GDP=100%
X ~ N(.71, .32)
0.90 probability of being < z means we want TA = .90 – .5 = .400 so z = 1.282
Therefore X = 71 + 1.282(3) = 74.85 (approximately)

Q.13

A new kind of alkaline battery is believed to last an average of 25 hours of continuous use (in
a given kind of flashlight). Assume that the population standard deviation is 2 hours. If a
random sample of 100 batteries is selected and tested, is it likely that the average battery in
the sample will last less than 24 hours of continuous use? Explain.

Ans:
μ = 25 σ =2 n = 100

P( X̄ < 24) = P
(
Z<
24−25
)
2/ 10 = P(Z < 5) = 0.0000003
Not probable at all.

Q.14

According to Money, the average U.S. government bond fund earned 2.9% over the 12
months ending in February 2007. Assume a standard deviation of 0.5%. What is the
probability that the average earning in a random sample of 25 bonds exceeded 3.0%?

Ans:
Sampling Distribution of Sample Mean
Population Distribution
Mean Stdev
2.9 0.5

μ = 2.9 σ = 0.5 n = 25
P( X > 3.0) = P
( Z> 30.. 0−2.
5/ √ 25 )
9
= 0.5 – 0.3413 = 0.1587

Q.15

The impact of a television commercial, measured in terms of excess sales volume over a
given period, is believed to be approximately normally distributed with mean 50,000 and
variance 9,000,000. Find 0.99 probability bounds on the volume of excess sales that would
result from a given airing of the commercial.

Ans:
X ~ N(50,000, 3,0002)
Give 0.99 probability bounds:
z = ± 2.576
Bounds are 50,000 ± 2.576(3,000) = [42,272, 57,728]

Q.16

Thirty-year fixed mortgage rates in April 2007 seemed normally distributed with mean
6.17%. The standard deviation is believed to be 0.25%. Find a bound such that the probability
that the actual rate obtained will be this number or below it is 90%.

Ans:

X ~ N(6.17, 0.252)
0.90 probability of being < z means we want TA = .90 – .5 = .400 so z = 1.282
Bounds are 6.17 +1.282(0.25) = 6.485