5 Discrete Probability Distributions

5.1 Given the following probability distributions:

Distribution A Distribution B
𝑥𝑖 𝑃(𝑋 = 𝑥𝑖 ) 𝑥𝑖 𝑃(𝑋 = 𝑥𝑖 )
0 0.07 0 0.50
1 0.08 1 0.20
2 0.15 2 0.15
3 0.20 3 0.08
4 0.50 4 0.07

(a). Complete the expected value for each distribution.

𝐸 (𝐴) = ∑4𝑖=0 𝑥𝑖 𝑃𝐴 (𝑋 = 𝑥𝑖 )

= 0(0.07) + 1(0.08) + 2(0.15) + 3(0.20) + 4(0.50)

= 0 + 0.08 + 0.30 + 0.60 + 2.0

= 2.98

𝐸 (𝐵) = ∑4𝑖=0 𝑥𝑖 𝑃𝐵 (𝑋 = 𝑥𝑖 )

= 0(0.50) + 1(0.20) + 2(0.15) + 3(0.08) + 4(0.07)

= 0 + 0.20 + 0.30 + 0.24 + 0.28

= 1.02

(b). Complete the standard deviation for each distribution

𝑆. 𝐷.𝐴 = √𝜎 2 = ∑4𝑖=0 [𝑥𝑖 − 𝐸 (𝑋)]2 𝑃𝑥 (𝑋 = 𝑥)

= (0 − 2.98)2 (0.07) + (1 − 2.98)2 (0.08) + (2 − 2.98)2 (0.15) + (3 − 2.98)2 (0.20) + (4 −

2.98)2 (0.50)

= 0.62 + 0.31 + 0.14 + 0 + 0.52

= 1.59

𝑆. 𝐷.𝐵 = √𝜎 2 = ∑4𝑖=0 [𝑥𝑖 − 𝐸 (𝑋)]2 𝑃𝑥 (𝑋 = 𝑥)

= (0 − 2.98)2 (0.07) + (1 − 2.98)2 (0.08) + (2 − 2.98)2 (0.15) + (3 − 2.98)2 (0.20) + (4 −

2.98)2 (0.50)

= 0.62 + 0.31 + 0.14 + 0 + 0.52

= 1.59
(c). Compare the result of distributions A and B

According to (b), the S.D value of A = B therefore A & B are equally distributed.

5.7 You are trying to develop a strategy for investing in two different stocks The anticipated
annual retuen for a $ 1,000 investment in each stock under four different economic condtions has
the following probability distribution:

Returns
Probability Economic Condition Stock X Stock Y
0.1 Recession -50 -100
0.3 Slow growth 20 50
0.4 Moderate growth 100 130
0.2 Fast growth 150 200

Compute the

(a). Expected return for stock X and for stock Y

𝐸 (𝑋) = ∑3𝑖=0 𝑥𝑖 𝑃𝑥 (𝑋 = 𝑥𝑖 )

= (−50)(0.1) + (20)(0.3) + (100)(0.4) + (150)(0.2)

= −5 + 6 + 40 + 30

= 71

𝐸 (𝑌) = ∑3𝑖=0 𝑥𝑖 𝑃𝑦 (𝑌 = 𝑦𝑖 )

= (−100)(0.1) + (50)(0.3) + (130)(0.4) + (200)(0.2)

= −10 + 15 + 52 + 40

= 97

(b). Standard deviation for stock X and for stock Y

𝑆. 𝐷.𝑋 = √𝜎 2 = ∑3𝑖=0 [𝑥𝑖 − 𝐸 (𝑋)]2 𝑃𝑥 (𝑋 = 𝑥𝑖 )

= (−50 − 71)2 (0.1) + (20 − 71)2 (0.3) + (100 − 71)2 (0.4) + (150 − 71)2 (0.2)

= 1,464.1 + 780.3 + 336.4 + 1,248.2

= 3,829

𝑆. 𝐷.𝑌 = √𝜎 2 = ∑3𝑖=0 [𝑦𝑖 − 𝐸 (𝑋)]2 𝑃𝑌 (𝑌 = 𝑦𝑖 )

= (−100 − 97)2 (0.1) + (50 − 97)2 (0.3) + (130 − 97)2 (0.4) + (200 − 97)2 (0.2)

= 3,880.9 + 662.7 + 435.6 + 2,121.8

= 7,101
(c). Would you invest in stock X or stock Y ? Explain

Invest in Stock X because even the Expected Value of X Y is almost identical, The S.D of Y is a
lot higher than X therefore stock Y has a higher risk.

5.9 Determine the following

(a). For 𝑛 = 8 𝑎𝑛𝑑 𝜋 = 0.30 𝑤ℎ𝑎𝑡 𝑖𝑠 𝑃(𝑋 = 7) ?

8!
𝑃(𝑋 = 7 | 𝑛 = 8, 𝜋 = 0.30) = 7!(8−7)! (0.30)7 (1 − 0.30)8−7

= 0.001225

(b). For 𝑛 = 3 𝑎𝑛𝑑 𝜋 = 0.67 𝑤ℎ𝑎𝑡 𝑖𝑠 𝑃(𝑋 = −1) ?

3!
𝑃(𝑋 = 1 | 𝑛 = 3, 𝜋 = 0.67) = 1!(3−1)! (0.67)1 (1 − 0.67)3−1

= 0.218889

(c). For 𝑛 = 6 𝑎𝑛𝑑 𝜋 = 0.33 𝑤ℎ𝑎𝑡 𝑖𝑠 𝑃(𝑋 = 3) ?

6!
𝑃(𝑋 = 3 | 𝑛 = 6, 𝜋 = 0.33) = 3!(6−3)! (0.33)3 (1 − 0.33)6−3

= 0.21617

(d). For 𝑛 = 7 𝑎𝑛𝑑 𝜋 = 0.51 𝑤ℎ𝑎𝑡 𝑖𝑠 𝑃(𝑋 = 2) ?

7!
𝑃(𝑋 = 2 | 𝑛 = 7, 𝜋 = 0.51) = 2!(7−2)! (0.51)2 (1 − 0.51)7−2

= 0.154291

5.10 Determine the mean and standard deviation of the variable X in each of the following binomial
distributions:

(a). 𝑛 = 10 𝑎𝑛𝑑 𝜋 = 0.70

𝜎 = √10(0.70)(1 − 0.70) = 1.449

𝜇 = 10 × 0.70 = 7

(b). 𝑛 = 3 𝑎𝑛𝑑 𝜋 = 0.50

𝜎 = √3(0.50)(1 − 0.50) = 0.8660

𝜇 = 3 × 0.50 = 1.5

(c). 𝑛 = 4 𝑎𝑛𝑑 𝜋 = 0.40

𝜎 = √4(0.40)(1 − 0.40) = 0.9798

𝜇 = 4 × 0.40 = 1.6
(d). 𝑛 = 5 𝑎𝑛𝑑 𝜋 = 0.80

𝜎 = √5(0.80)(1 − 0.80) = 0.8944

𝜇 = 5 × 0.80 = 4

5.14 A manufacturing company regulary conducts quality control checks at specified periods on
the prodects it manufactures. Historically, the failure rate for LED light bulbs that the company
manyfactures is 5% Suppose a random sample of 10 LED light bulbs is selected. What is the
probability that

(a). None of the LED light bulbs are defective ?

10!
𝑃(𝑋 = 0) = 0!(10−0)! (0.05)0 (1 − 0.05)10−0

= 0.5987

(b). Exactly one of the LED light bulbs is defective ?

10!
𝑃 (𝑋 = 1) = (0.05)1 (1 − 0.05)10−1
1!(10−1)!

= 0.315125

(c). Two or fewer of the LED light bulbs are defective ?

𝑃(𝑋 ≤ 2) = 𝑃(𝑋 = 0) + 𝑃(𝑋 = 1) + 𝑃(𝑋 = 2)

𝑓𝑟𝑜𝑚 (𝑎) 𝑃(𝑋 = 0) = 0.5987 𝑎𝑛𝑑 (𝑏)𝑃(𝑋 = 1) = 0.315125

10!
𝑃(𝑋 = 2) = 2!(10−2)! (0.05)2 (1 − 0.05)10−2

= 0.7463

𝑃(𝑋 ≤ 2) = 0.5987 + 0.315125 + 0.07463

= 0.988455

(d). Three or more of the LED light bulbs are defective ?

𝑃(𝑋 ≥ 3) = 1 − 𝑃(𝑋 ≤ 2)

= 1 − 0.9885

= 0.0115

5.18 Assume a Poisson distribution

(a). 𝐼𝑓 λ = 2.5, find P(X = 2)

𝑒 −2.5 (2.5)2 2.52
𝑃(𝑋 = 2 | λ = 2.5) = = (2.71828)2.5×2 = 0.256516
2!

(b). 𝐼𝑓 λ = 8.0, find P(X = 8)

𝑒 −8 (8)8 88
𝑃(𝑋 = 8 | λ = 8.0) = = (2.71828)8×8! = 0.139587
8!
(c). 𝐼𝑓 λ = 0.5, find P(X = 1)
𝑒 −0.5 (0.5)1 0.5
𝑃(𝑋 = 1 | λ = 0.5) = = (2.71828)0.5 = 0.303265
1!

(d). 𝐼𝑓 λ = 3.7, find P(X = 0)

𝑒 −3.7 (3.7)0 1
𝑃(𝑋 = 0 | λ = 3.7) = = (2.71828)3.7×1 = 0.024724
0!

5.20 Assume a Poisson distribution with 𝛌 = 𝟓. 𝟎. What is the probability that

(a). 𝑋 = 1
𝑒 −5 (5)1 5
𝑃(𝑋 = 1 | λ = 5.0) = = (2.71828)5 = 0.03369
1!

(b). 𝑋 < 1
𝑒 −5 (5)0 1
𝑃(𝑋 ≤ 1 | λ = 5.0) = 𝑃(𝑋 = 0 | λ = 5 = 0!
= (2.71828)5 = 0.006738

(c). 𝑋 > 1

𝑃(𝑋 > 1 | λ = 5.0) = 1 − 𝑃 (𝑋 = 0) − 𝑃(𝑋 = 1)

𝑓𝑟𝑜𝑚 (𝑎) = 𝑃 (𝑋 = 1) = 0.03369 𝑎𝑛𝑑 (𝑏) = 𝑃(𝑋 = 0) = 0.006738

𝑃(𝑋 > 1 | λ = 5.0) = 1 − 0.03369 + 0.006738 = 0.9596

(d). 𝑋 ≤ 1

𝑃(𝑋 ≤ 1 | λ = 5.0) = 1 − 𝑃 (𝑋 > 1 | λ = 5.0)

= 1 − 0.9596

= 0.0404

5.25 The US. Department of Transportation maintains statistics for involuntary denial of boarding.
In July – September 2014 the American Airlines rate of involuntarily denying boarding was 0.58
per 10,000 passenger. What is the probability that in the next 10,000 passengers, there will be

(a). No one involuntarily denied boarding ?

𝑒 −0.58 (0.58)0 1
𝑃(𝑋 = 0 | λ = 0.58) = = (2.71828)0.58 = 0.5599
0!

(b). At least one person involuntarily denied boarding ?

𝑃(𝑋 ≥ 1 | λ = 0.58) = 1 − 𝑃(𝑋 = 0)

= 1 − 0.5599

= 0.4401

(c). At least two persons involuntarily denied boarding ?

𝑃(𝑋 ≥ 2| λ = 0.58) = 1 − 𝑃(𝑋 = 0) − 𝑃(𝑋 = 1)

𝑒 −0.58 (0.58)1 0.58
𝑓𝑟𝑜𝑚 𝑃(𝑋 = 1) = 1!
= (2.71828)0.58 = 0.324741

𝑃(𝑋 ≥ 2| λ = 0.58) = 1 − 0.5599 − 0.324741 = 0.115395