PGPX 2020-21

Preliminary Material for the Module

“Introductory Concepts of Probability and Statistics”

Introductory Note:

Please find enclosed eight problems covering the introductory concepts of

Probability and Statistics. The ideas on which these problems are based are of
great importance for the First Term Building Blocks course 'Analysis of Data'. We
request you to solve all these problems on your own after reading the material
suggested.

Reading:

Chapter 1- 4 and Chapter 7-8 of Stine & Foster; Robert E. Stine and Dean Foster –
Statistics for Business – Decision Making and Analysis or Chapter 1-4 of
Anderson, Sweeney & Williams; Anderson D R, Sweeney D J & Williams T A –
Statistics for Business & Economics - 8th Edition, Thomson

Problems:

1. Consider the following about March 1992 nonfarm employment (in

thousands of workers) in the United States, including Puerto Rico and the
Virgin Islands:

Alabama 1639.0 Montana 299.3

Alaska 235.5 Nebraska 730.6
Arizona 1510.0 Nevada 638.4
Arkansas 951.1 New Hampshire 466.5
California 12324.3 New Jersey 3390.7
Colorado 1552.7 New Mexico 583.3
Connecticut 1510.6 New York 7666.4
Delaware 335.2 North Carolina 3068.3
District of 667.0 North Dakota 271.0
Columbia
Florida 5322.8 Ohio 4709.9
Georgia 2927.1 Oklahoma 1196.9

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 Hawaii 546.3 Oregon 1245.6
Idaho 400.4 Pennsylvania 4992.1
Illinois 5146.2 Rhode Island 413.2
Indiana 2496.3 South Carolina 1494.6
Iowa 1229.2 South Dakota 295.6
Kansas 1108.3 Tennessee 2178.6
Kentucky 1474.8 Texas 7209.7
Louisiana 1617.5 Utah 752.2
Maine 500.0 Vermont 244.8
Maryland 2037.3 Virginia 2792.4
Massachusetts 2751.6 Washington 2165.8
Michigan 3828.9 West Virginia 622.1
Minnesota 2117.1 Wisconsin 2272.1
Mississippi 940.9 Wyoming 198.0
Missouri 2275.9 Puerto Rico 842.4
Virgin Islands 42.4

a) Arrange the data into 10 equal-width, mutually exclusive classes.

b) Determine the frequency and relative frequency within each class.
c) Are these data discrete or continuous?
d) Construct a “less-than” cumulative frequency distribution and ogive for
the relative frequency distribution in part (b).
e) Based on the ogive constructed in part (d), what proportions of states have
nonfarm employment greater than 3 million?

2. A.T. Cline, the mine superintendent of the Grover Coal Co., has recorded the
amount of time per work shift that Section Crew #3 shuts down its machinery
for on-the-spot adjustments, repairs, and moving. Here are the records for
the crew’s last 35 shifts:

60 72 126 110 91 115 112

80 66 101 75 93 129 105
113 121 93 87 119 111 97
102 116 114 107 113 119 100
110 99 139 108 128 84 99

a) Arrange the data in an array from highest to lowest.

b) If Cline believes that a typical amount of downtime per shift is 108
minutes, how many of Crew #3’s last 35 shifts exceeded this limit? How
many were under the limit?
c) Construct a relative frequency distribution with 10-minute intervals.
d) Does your frequency distribution indicate that Cline should be concerned?

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3. Allison Barrett does statistical analyses for an automobile racing team. Here
are the fuel consumption figures in miles per gallon for the team’s cars in
recent races:

4.77 6.11 6.11 5.05 5.99 4.91 5.27 6.01

5.75 4.89 6.05 5.22 6.02 5.24 6.11 5.02

a) Calculate the median fuel consumption.

b) Calculate the mean fuel consumption.
c) Group the data into five equally sized classes. What is the fuel
consumption value of the modal class?
d) Which of the three measures of central tendency is best for Allison to use
when she orders fuel? Explain.

4. An engineer tested nine samples of each of three designs of a certain bearing

for a new electrical winch. The following data are the number of hours it
took for each bearing to fail when the winch motor was run continuously at
maximum output, with a load on the winch equivalent to 1.9 times the
intended capacity.

Design
A B C
16 18 31
16 27 16
53 23 42
15 21 20
31 22 18
17 26 17
14 39 16
30 17 15
20 28 19
a) Calculate the mean and median for each group.
b) Based on your answer, which design is best and why?

5. The following frequency distributions summarize the price changes on May

24, 1993, of all companies traded on the New York Stock Exchange whose
names begin with L or R.

Change in Price Number of L Companies Number of R Companies

-1.25 to -1.01 1 1
-1.00 to -0.76 1 1
-0.75 to -0.51 1 0
-0.50 to -0.26 7 5
-0.25 to -0.01 19 20

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 0.00 14 20
0.01 to 0.25 21 14
0.26 to 0.50 5 8
0.51 to 0.75 3 1
0.76 to 1.00 2 4
1.01 to 1.25 1 0

a) Find the arithmetic means of the two distributions.

b) Find their medians.
c) Find their modes.
d) Which is the best measure of central tendency for each of the
distributions?
e) Find the standard deviations of the two distributions. (Each group is an
entire population)
f) Use their coefficients of variation to determine which distribution has less
relative variability.

6. BMT, Inc. is trying to decide which of two oil pumps to use in its new race car
engine. One pump produces 75 pounds of pressure and the other 100. BMT
knows the following probabilities associated with the pumps:

Probability of Engine Failure Due to

Seized Bearings Ruptured Head Gasket
Pump A 0.08 0.03
Pump B 0.02 0.11

a) If seized bearings and ruptured head gaskets are mutually exclusive,

which pump should BMT use?
b) If BMT devises a greatly improved “rupture-proof” head gasket, should it
change its decision?

7. In a staff meeting called to address the problem of returned checks at the

supermarket where you are interning as a financial analyst, the bank reports
that 12 percent of all checks are returned for insufficient funds, and of those,
in 50 percent of cases, there was cash given back to the customer. Overall, 10
percent of customers ask for cash back at the end of their transaction with the
store. For, 1000 customer visits, how many transactions will involve:

a) Insufficient Funds?
b) Cash back to the customer?
c) Both insufficient funds and cash back?
d) Either insufficient funds or cash back?

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8. The table below is a data array of the top 25 Illinois multibank holding
companies, ranked by shareholder return on equity (ROE) for the period
3/31/91 to 3/31/92. Use this information to answer the following questions.
Assume that ROE is independent of total assets and dependent on equity as a
percentage of assets (E/A). Assume that net income is dependent on total
assets.

Ran Holding Company Shareholder E/A Total Net

k ROE Assets Income
(%) (%) ($ 000) ($ 000)
1 United Community 27.20 5.61 157,492 1,784
Bancorp
2 Illinois Financial 25.16 6.72 306,048 3,846
Services
3 FBOP Corp. 24.44 6.39 560,770 7,780
4 Alpine Bancorp, Inc. 24.12 7.18 170,382 2,248
5 River Forest Bancorp, 20.92 4.42 1,313,797 20,339
Inc.
6 Pinnacle Banc Group 18.81 8.58 728,167 10,328
Inc.
7 FNBC of La Grange Inc. 18.68 8.92 180,671 2,459
8 First Park Ridge Corp. 17.72 9.91 314,145 5,025
9 Palmer Bancorp Inc. 17.01 8.61 225,016 3,462
10 Northern Trust Corp. 16.66 5.83 13,154,52 132,246
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11 West Suburban Bancorp 16.02 7.58 1,005,485 11,940
12 Parkway Bancorp Inc. 15.93 7.51 550,559 6,716
13 First Evergreen Corp. 15.70 7.39 1,583,884 17,187
14 LaSalle Community 15.30 7.08 2,814,118 27,144
Bancorporation Inc.
15 Premier Financial 15.01 6.95 369,503 3,908
Services
16 Riverdale Bancorp 14.95 5.28 221,426 2,039
17 Town & Country 14.90 4.30 133,000 Not
Bancorp Inc. available
18 Standard Bancshares 14.83 8.87 426,025 5,267
Inc.
19 Heritage Financial 14.35 7.57 738,726 8,200
Services
20 National Bancorp Inc. 14.25 5.58 275,856 2,863
21 Firstbank of Illinois Co. 13.94 6.32 1,494,060 14,906
22 Banterra Corp. 13.77 6.91 393,158 3,461
23 Northern Illinois 13.67 8.46 784,260 8,658

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 Financial Corp.
24 Heartland Bancorp Inc. 13.52 8.69 159,767 1,704
25 Sandwich Banco Inc. 13.51 6.60 308,290 2,892

a) What is the probability that a randomly selected holding company will

have an ROE greater than 16 percent, given that its E/A ratio is less than 7
percent?
b) What is the probability that a randomly selected holding company will
have an ROE between 14 and 16 percent (inclusive), given that its E/A
ratio is greater than 7 percent?
c) Determine the probability that a randomly selected holding company will
have a net income greater than $50 million, given that its total assets are
greater than $ 2 billion.
d) What is the probability that a randomly selected holding company will
have an ROE greater than 15 percent?
e) Calculate the probability that a randomly selected holding company will
have an ROE greater than 15 percent and have at least $2 billion in total
assets.
f) Determine the probability that a randomly selected holding company will
have an ROE greater than 20 percent, given that its total assets are greater
than or equal to $1 billion.