A Transcript of the Lectures in Discrete Random Variables and Probability Distribution

Learning Objectives:
In the previous lecture we discussed the basic concepts of probability. Now, we are going to learn about
another concept called random variables and their corresponding probability distributions.

After reading this transcript, it is hoped that the knowledge acquired on the topic will help us form a greater
understanding about modeling and describing phenomena that is random in nature.

References Used:

Calaca, N., Uy, C., Noble, N., Manalo, R. (2016). Statistics and Probability. Vibal Group, Inc., Quezon City

Lim, Y., Nocon, R., Nocon, E., Ruivivar, L. (2016). Math for Engaged Learning: Statistics and Probability.
Sibs Publishing House, Inc., Quezon City

Melosantos, L., Antonio, J., Robles, S., Bruce, R., and Sacluti, J (2016). Math Connections in the Digital Age
Statistics and Probability. Quezon City: Sibs Publishing House, Inc., 2016.

Mendelhall, W., Beaver, R., Beaver, B. (2013). Introduction to Probability and Statistics. Pacific Grove, Calif.
: Brooks/Cole ; Andover : Cengage Learning [distributor], 2013.

Lecture 1.1.
Introduction to Random Variables

Introduction

Recall that an experiment is an activity that produces outcomes or generates data. Further, note that these
outcomes have a corresponding chance (or probability). Some examples of which are a) tossing three coins
and counting the number of heads, b) recording the time a person can squat before he/she gets exhausted,
c) counting the class attendance of students for today, etc. Now, in this lecture, we will be talking about a
way to map the outcomes of these statistical experiments determined by probabilities to a number.

Lesson Proper

Def. A Random Variable is variable that assumes real number values that is derived from the outcomes
of an experiment. Alternatively, a random variable is a function that maps the outcomes of a random
process to a numeric value. That is,

𝑋: Outcome → Number

Some Examples of a Random Variable:

• 𝑋 = The number of times the coin turns up a head in tossing a coin 10 times.
• 𝑌 = The sum of the two numbers in rolling 2 dice, the resulting variables will then be from two to
twelve.
• 𝑍 = The total distance travelled by a taxicab in a week.

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 • 𝑊 = The playing time of an amateur basketball player per game.

Two Types Random Variables

Note that random variables are classified as discrete or continuous according to the values it assumes.

The random variables 𝑋 and 𝑌 stated above are considered as discrete random variables since these
variables are defined over a finite (countable) sample space. Given this, we have the following definition:

Def. Discrete Random Variable

A Discrete Random Variable is a random variable associated with experiments resulting to numerical
values that are countable and whole numbers only.
•
Some Other Examples of Discrete Random Variable:
• Number of defective iPads produced by Apple in a specific plant
• Number of female athletes in a University
• Number of patient arrivals per hour at a certain hospital
• The number of questions answered correctly in specific exam.
• The number of languages a certain group of individuals speak.

Meanwhile, the random variables 𝑍 and 𝑊 are considered as continuous because these random variables
are defined over an uncountable infinite sample space. This leads us to the following definition:

Def. Continuous Random Variable

A Continuous Random Variable is a random variable where the observed numerical values are results
of measuring. They can take on non-integers as they can take on any numbers contained within the
number line.

Some other Examples of Continuous Random Variables:

• Amount of sugar in a cup of milk tea
• Speed of vehicles travelling along NLEX
• Time needed to finish an examination
• Height of basketball players
• Diameter of a table

Example 1.1.1. Classify the following random variables as DISCRETE or CONTINUOUS random variable:

CONTINUOUS 1. Time it takes to fill in a bottle of water

DISCRETE 2. The frequency of scores of SHS_STAT students during the first test.
CONTINUOUS 3. The time lapsed until your crush texts you back.
DISCRETE 4. Average number of students in a class
DISCRETE 5. Number of patients in an emergency room
CONTINUOUS 6. Floor area of a school room
DISCRETE 7. The number of voters in a congressional district
DISCRETE 8. The number of defective cell phones produced by a company
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 CONTINUOUS 9. Speed of a falling object
DISCRETE 10. Number of students in a class
CONTINUOUS 11. The average amount of water consumption per household per month
CONTINUOUS 12. The amount of rainfall in August
DISCRETE 13. Number of athletes joining the Olympics
DISCRETE 14. The number of cakes baked
CONTINUOUS 15. Monthly income of a pharmacist

Determining the Possible Outcomes and Value of a Random Variable

As discussed previously, a random variable is a mapping of a random outcome to a number. Now, in this
part of the lecture, we will learn how to identify the possible outcomes (or otherwise known as writing the
sample space of the random variable) and the value of the random variable.

Example 1.1.2. In a box are two (2) balls — one white and one black, two balls are picked one at a time with
replacement. List down all the possible outcomes and the values of the random variable 𝑋 representing the
number of white balls drawn using the table below.

Solution to Example 1.1.2. Let 𝑋 represent the number of white balls drawn. First, we create a table with
the following heading

Possible Outcomes Number of white ball (𝑋)

After which, we list the possible outcomes of the experiment. Clearly, if two balls are picked one at a time
with replacement, the possible outcomes are WW (White, White), WB (White, Black), BW (Black, White),
and BB (Black, Black). We now have the following:

Possible Outcomes Number of white ball (𝑋)

WW
WB
BW
BB

Lastly, we determine the value of each of the possible outcome of the random variable:

Possible Outcomes Number of white ball (𝑋)

WW 2
WB 1
BW 1
BB 0

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Remark. There are various ways to list the possible outcomes and values of a random variable. In fact,
different texts may show different ways. This tabular way of showing the sample space and the values of
the random variable is one of the many ways to show its possible outcomes and values.

Example 1.1.3. Three coins are tossed, list down all the possible outcomes and the values of the random
variable 𝑌 representing the number of heads that occur.

Solution to Example 1.1.3.

Let 𝑌 be the random variable representing the number of heads that occur , next we determine the values
of the random variable 𝑌.

Possible Outcomes Number of head (𝑌)

HHH 3
HHT 2
HTH 2
THH 2
HTT 1
THT 1
TTH 1
TTT 0

Example 1.1.4. In a family with three children, list down all the possible outcomes of their sexes and the
values of the random variable 𝑍 representing the number of male children.

Solution to Example 1.1.4.

Possible Outcomes Number of boys (𝑍)

MMM 3
MMF 2
MFM 2
FMM 2
MFF 1
FMF 1
FFM 1
FFF 0

Supplementary Exercises

List all possible outcomes and find the values of the random variable:

1. A manufacturer produces laptops. Suppose three units are tested by the quality assurance team and
they want to find the number of defective units that occur. Let D represent the defective units and N
the non-defective units. Show the values of the random variable 𝑋 representing the number of defective
units using the table below.

Number of defective
Possible Outcomes
laptops (𝑋)
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2. In an experiment four coins are tossed. Let 𝑀 be the random variable representing the number of tails
that occur. Find the values of the random variable 𝑀.

Lecture 1.2.
Discrete Probability Distribution

Introduction

After learning the concept of random variables, we will now learn how to construct the probability
distribution of a discrete random variable. Our understanding about the probability of an event is
important in this lesson.

Lesson Proper

Def. Probability Distribution of a Discrete Random Variable

The Probability Distribution of a Discrete Random Variable is a organized tabulation, graph, or
formula that lists the values of a discrete random variable together with their corresponding
probabilities. Note that the probabilities involved in the probability distribution of a discrete random
variable are determined either theoretically, or through an experiment.

By convention, the notation used for the probability distribution of a discrete random variable is 𝑃(𝑋)
or 𝑃(𝑋 = 𝑘), where 𝑘 represents any of the values of the random variable.

Remark.
Let us recall that,

a) Theoretical Probability is the likelihood of an event that is based on theory (mathematics).This is

given by the formula:

number of elements in 𝐸 𝑛(𝐸)

𝑃 (𝐸 ) = =
number of elements in 𝑆 𝑛(𝑆)

Where:
𝐸 is any event (or the number of desired outcome)
𝑆 is the total number of sample space (or the total number of possible outcomes)

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 b) Experimental (or Observation/Empirical) Probability is the likelihood of an event made in
repeating an experiment and observing the outcomes. Its formula is:

number of times 𝐸 occured 𝑓

𝑃 (𝐸 ) = =
total number of observations 𝑁

Properties of the Probability Distribution of a Discrete Random Variable:

The probability distribution of a discrete random variable is considered as a valid discrete probability
distribution when the following are satisfied:

a) The probability of each event in the sample space must be between or equal to 0 and 1.

0 ≤ 𝑃(𝑋) ≤ 1

b) The sum of the probabilities of all the events in the sample space must be equal to 1 (or in
percentages, 100%).

∑ 𝑃 (𝑋 ) = 1

Example 1.2.1. In a box are 2 balls, one red and one blue. Two balls are picked one at a time with
replacement. With the number of red balls drawn, construct the probability distribution table.

Solution to Example 1.2.1.

Let 𝑋, be the number of red balls drawn. Clearly, the possible values of 𝑋 = 0, 1, 2.

Further, the sample space for the random variable is 𝑆 = { (blue, blue), (blue, red), (red, blue), (red, red) }.
This means that the number of sample space, 𝑛(𝑆), is equal 4. From here we create a table containing the
following information:

Probability Distribution Table

Number of Red Balls (𝑋) Probability (𝑃(𝑋))
0
1
2

Remark. Tables can be written in shorthand as

𝑋 𝑃(𝑋)
0
1
2

when notations are properly introduced.

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Now, we compute for the corresponding theoretical probabilities

Number of Red Balls

Possible Outcomes Probability (𝑃(𝑋))
(𝑋)
1
(blue, blue) 0 𝑃 (0) = = 0.25
4
2
(blue, red)(red, blue) 1 𝑃(1) = = 0.5
4
1
(red, red) 2 𝑃(2) = = 0.25
4

∑ 𝑃 (𝑋 ) = 1

Remark. Always check if you have made a valid probability distribution. First, that is, the probability of
each event in the sample space should be between or equal to 0 and 1. Second, the sum of the probabilities
of all the events in the sample space should be equal to 1.

Example 1.2.2. Suppose a die is rolled 2 times. Let 𝑋 = the number of times a 6 comes up. Answer the
following:

a) Construct the probability distribution for this experiment.

b) What is the probability that out of the 2 rolls there wouldn’t be a 6?
c) What is the probability that one out of the 2 rolls will give 6?

Solution to example 1.2.2. a)

To create a probability distribution table, we need the following information: 1) the values of the random
variable, and 2) the values that will be used to compute for the probability (number of desired outcomes
(𝑛(𝐸)); total number of desired outcomes (𝑛(𝑆))) associated with each random variable.)

Now, it should be clear that the values of the random variable is 𝑋 = 0, 1, 2 (in rolling a die twice, the face
could show one (1) six, or two (2) sixes, or none at all).

Next, to get the values that will be used to compute for the probability, we may write down all the possible
outcomes (e.g. 1,1; 1,2; 1,3; 1,4; 1,5; 1,6; …; 6,6) and list the number of times a 6 comes up. Alternatively,
we may also list the possible outcomes using a matrix shown on the illustration below:

1 2 3 4 5 6
1 1,1 1,2 1,3 1,4 1,5 1,6
2 2,1 2,2 2,3 2,4 2,5 2,6
3 3,1 3,2 3,3 3,4 3,5 3,6
4 4,1 4,2 4,3 4,4 4,5 4,6
5 5,1 5,2 5,3 5,4 5,5 5,6

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 6 6,1 6,2 6,3 6,4 6,5 6,6

From here we see that 𝑛(𝑆) = 36; 𝑛(𝑛𝑜 6 𝑐𝑜𝑚𝑒𝑠 𝑢𝑝) = 25; 𝑛(𝑜𝑛𝑒 (1) 𝑠𝑖𝑥 𝑐𝑜𝑚𝑒𝑠 𝑢𝑝) = 10; and
𝑛(𝑡𝑤𝑜 (2) 𝑠𝑖𝑥 𝑐𝑜𝑚𝑒𝑠 𝑢𝑝) = 1. This brings us to the following table:

Probability Distribution Table

𝑋 𝑃(𝑋)

25
0 𝑃 (0 ) = = 0.6944
36

10
1 𝑃 (1 ) = = 0.2778
36

1
2 𝑃 (2 ) = = 0.0278
36

Solution to Example 1.2.2. b)

“The probability that out of the 2 rolls there wouldn’t be a six” means that we want the probability when
𝑋 = 0. Thus,

25
𝑃(𝑋 = 0) = 𝑃(0) = 36 = 0.6944 or (69.44%)

Solution to Example 1.2.2. c)

“The probability that one out of the 2 rolls give 6” means that we want the probability when 𝑋 = 1. Hence,
10
𝑃(𝑋 = 1) = 𝑃(1) = 36 = 0.2778 or (27.78%)

Remark. For uniformity, we will always express answers in four decimal places.

Example 1.2.3. The result of a survey given to Senior High School students is shown below

Number of Pets at Frequency

Home (𝑌)
0 5
1 4
2 6
3 8
4 1
5 1

Task: Construct the probability distribution for the random variable 𝑌, the number of pets that they have
at home, and determine the chance that a senior high school student have three (3) pets at home.
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Solution to Example 1.2.3.
Since the values for the random variable 𝑌 are already given, we construct the following table:

Number of Pets at
𝑃(𝑌 = 𝑘)
Home (𝑌)
0
1
2
3
4
5

Further, recall that the given survey result is an outcome of making an observation (or experiment). Thus,
𝑓
the formula for the experimental probability , 𝑃(𝑌 = 𝑘) = 𝑁 , should be used. Note that in this formula, 𝑓
represents the frequency of the desired observation, while 𝑁 is the total number of observations. Now,
based on the given table, this means that 𝑁 = 5 + 4 + 6 + 8 + 1 + 1 = 25. Also, the frequency of having no
pets at home is five (5); the frequency of having one pet at home is four (4); the frequency of having two
pets at home is six (6) and so on…

As such, the use of this formula brings us to complete the table:

Number of Pets at
Home (𝑌) 𝑃(𝑌 = 𝑘)

5
0 𝑃 (𝑌 = 0 ) =
25
4
1 𝑃 (𝑌 = 1 ) =
25
6
2 𝑃 (𝑌 = 2 ) =
25
8
3 𝑃 (𝑌 = 3 ) =
25
1
4 𝑃 (𝑌 = 4 ) =
25
1
5 𝑃 (𝑌 = 5 ) =
25

Lastly, it should be clear that the chance that a senior high school student have three (3) pets at home is
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𝑃(a senior high school student have three pets at home) = 𝑃 (𝑌 = 3) = 𝑃 (3) = 25 = 0.32 or 32%

9
Example 1.2.4. A nursing school is investigating the number of reported laboratory accidents committed
by their students while on their internship program. These are on-the-job training related accidents over
a period of one month. The following are records on the laboratory accidents that were documented:

Number of Students who

Laboratory Accidents
Committed Laboratory
(𝑋)
Accidents (𝑓)
0 25
1 15
2 2
3 5
4 2
5 1

Answer the following:

a) Construct the probability distribution
b) What is the probability of having no laboratory accident?
c) What is the probability of having two (2) laboratory accidents?
d) What is the probability of having at least four (4) laboratory accidents?
e) What is the probability of having at most three (3) laboratory accidents?

Solution to example 1.2.4. a)

Laboratory
accidents, 𝑃 (𝑋 )
𝑋
25
0 𝑃 (𝑋 = 0) = = 0.5
50
15
1 𝑃 (𝑋 = 1) = = 0.3
50
2
2 𝑃 (𝑋 = 2) = = 0.04
50
5
3 𝑃 (𝑋 = 3) = = 0.10
50
2
4 𝑃 (𝑋 = 4) = = 0.04
50
1
5 𝑃 (𝑋 = 5) = = 0.02
50

Solution to Example 1.2.4. b)

𝑃(having no laboratory accidents) = 𝑃 (𝑋 = 0) = 0.50

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Solution to Example 1.2.4. c)

𝑃 (having two laboratory accidents) = 𝑃(𝑋 = 2) = 0.04

Solution to Example 1.2.4. d)

𝑃(having at least four laboratory accidents) = 𝑃(𝑋 ≥ 4) = 𝑃(𝑋 = 4 or 𝑋 = 5)

= 𝑃(𝑋 = 4) + 𝑃(𝑋 = 5) = 0.06

Solution to Example 1.2.4. e)

𝑃(having at most three laboratory accidents) = 𝑃(𝑋 ≤ 3)

= 𝑃(𝑋 = 0 or 𝑋 = 1 or 𝑋 = 2 or 𝑋 = 3)
= 𝑃(𝑋 = 0) + 𝑃(𝑋 = 1) + 𝑃 (𝑋 = 2) + 𝑃(𝑋 = 3) = 0.94

Supplementary Exercises

Perform the following:

1. Determine which among the probability distributions below are valid.

a)
𝑋 0 1 2 3 4 5

1 1 1 1 1 1
𝑃(𝑋)
6 6 6 6 6 6

b)
𝑋 0 5 10 15 20
𝑃(𝑋) −0.5 0.7 0.3 0.2 0.3

c)
𝑋 2 4 6 8 10
𝑃(𝑋) 1.22 0.54 0.25 0.48 0.01

d)
𝑋 0 1 2 3 4
𝑃(𝑋) 0.10 0.15 0.15 0.25 0.35

2. Consider the discrete probability distribution below:

𝑋 −20 −10 0 10 20 30
𝑃(𝑋) 0.125 0.175 0.150 0.200 𝑚 0.100

a) What should be value of 𝑚?

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 b) What is the probability that the random variable 𝑋 is negative?
c) What is the probability that the random variable 𝑋 is greater than −10?
d) What is the probability that the random variable 𝑋 is less than 0?

3. The table below shows the number of cars sold in a month by 25 car dealers.

Cars sold Number of car 𝑓

(𝑋) dealers, 𝑓 𝑃 (𝑋 ) =
𝑁
0 1
1 3
2 3
3 4
4 8
5 6

a) Complete the table

b) What is the probability that a car dealer sold 2 cars?
c) What is the probability that a car dealer sold more than 3 cars?
d) What is the probability that a car dealer did not sell any car?
e) What is the probability that a car dealer sold 1 to 2 cars?

4. The household of a local community were surveyed about the number of occupants who are
working. It was found that 25 households have one occupant working, 18 have two occupants
working, 12 have three occupants working and 5 have four occupants working.

Let 𝑋 be the number of occupants working from a randomly selected household, create a probability
distribution for the random variable 𝑋.

Enrichment/Extension

Below is the result of a survey which aims to determine the reason behind SHS graduates who forgo a
University for college education:

Reasons for Not Going to a University Frequency

Did not pass the entrance exam 165
Too expensive 60
Transfer of residence 15
Illness 18
Other reason 27
No reason 15

1. Construct a probability distribution for the table

2. Would you consider the information in the table to be a probability distribution?
3. Does the probability distribution you constructed pass as a valid discrete probability distribution?
4. What is the variable understudy?
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 5. How many SHS graduates who forgo a University for college education students were considered?
6. What is the probability that a student will not go to a university because of:
a) Illnesses
b) Expensiveness
c) Did not pass the entrance exam

Lecture 1.3.
Mean and Variance of a Discrete Random Variable

Introduction

Previously, we have discussed how to construct probability distributions for discrete random variables.
Further, significant questions such as “What fraction of the time will intern students of a certain nursing
school incur three laboratory accidents?” among others, were answered.

Now, in this lecture, we will respond to other important questions such as “On the average, what number
of laboratory accidents will we expect our intern students to incur, based on the data that we got?”. In other
words, this lecture will teach us how to make expectations about a random phenomenon we choose to
observe.

Lesson Proper

Recall that the Population Mean, 𝜇, is a parameter or population characteristic that describes the center or
common data in the distribution. Now, with regards to the discrete random variable, the following is its
definition:

Def. Mean of a Discrete Random Variable

Let 𝑋 be a discrete random variable with probability distribution 𝑃(𝑋). The mean or the expected value
of 𝑿 is given as

𝜇 = 𝐸 (𝑋) = ∑[𝑋 ∙ 𝑃(𝑋)]

Let us look at an intuitive justification for the formula of the expected value of a discrete random variable:

Toss two fair coins again and let 𝑋 be the number of heads observed. Recall that the probability distribution
for 𝑋 (computed using theoretical probability) is

𝑋 𝑃(𝑋)
1
0
4
2
1
4
1
2
4

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Now, suppose that we perform an experiment by large number of times, say 400 times. Intuitively, for each
of the possible value (or outcomes) of the random variable, one would observe approximately 100
outcomes where no heads appear, 100 outcomes where a head and a tail appears, 100 outcomes where a
tail and a head appears, and lastly, 100 outcomes where two heads appear (remember, the coin is assumed
to be fair). The average then of this experiment is,

𝑠𝑢𝑚 𝑜𝑓 𝑜𝑢𝑡𝑐𝑜𝑚𝑒𝑠
𝑡𝑜𝑡𝑎𝑙 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑡𝑟𝑖𝑎𝑙𝑠

which implies that,

100(no heads are observed ) + 200(one head is observed) + 100(two heads are observed)
[Equation 1]
400

or otherwise, using the values of the random variable,

100(0) + 200(1) + 100(2)

. [Equation 2]
400

Further, note that Equation 2 reduces to

1 2 1
(0) + (1) + (2) ,
4 4 4

which is exactly what the formula of the expected value (∑[𝑋 ∙ 𝑃 (𝑋)]) states.

Remark. We could use a similar intuitive justification to justify formulas for the measures of dispersion—
the population variance (a parameter that measures the average squared distance or deviation of each item
in the data from the mean) and the standard deviation (a measure of the average distance between the
values of the data in the set and the mean, or how spread out the values in a data set are around the mean.
). However, to delegate an ample amount of time for the priority areas of the lecture, we will go straight to
their definitions and applications in real-life situations.

Def. Variance of the Discrete Random Variable

Let 𝑋 be a discrete random variable with probability distribution 𝑃(𝑋) and mean 𝜇. The variance (𝜎 2 )
of 𝑋 is

𝜎 2 = ∑[(𝑋 − 𝜇)2 ∙ 𝑃(𝑋)]

Remark. The standard deviation (𝜎) of a random variable 𝑋 is equal to the principal square root (positive
square root) of its variance. That is

𝜎 = √variance

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Example 1.3.1. A young professional wish to venture into some investments. Two banks offered an
investment plan which indicates the return on investment (ROI) for a period of 5 years. In addition, the
probabilities associated with each ROI’s are provided in the table:

ROI in thousands Probability

Investment Plan
(𝑋) (𝑃(𝑋))
10 0.2
20 0.2
Plan A (Bank A) 30 0.2
40 0.2
50 0.2
30 0.2
30 0.2
Plan B (Bank B) 30 0.2
30 0.2
30 0.2

Question: Which plan should this professional invest in?

Solution to Example 1.3.1.

Since the ROI’s involve randomness, at the onset, it would be judicious to choose the investment plan that
would yield the greater ROI average. As such, we compute for the mean value of the two random variables
associated for each plan.

To compute for the mean, 𝜇 of the investment for we do the following:

• We multiply 𝑋 and 𝑃(𝑋) values per row and we write the results on another column with a heading
entitled “𝑋 ∙ 𝑃(𝑋)”
• Next, we get the sum of all 𝑋 ∙ 𝑃(𝑋) column as this is what is stated by the formula for the mean of a
discrete random variable (𝜇 = ∑[𝑋 ∙ 𝑃(𝑋)]).

ROI in thousands 𝑋 ∙ 𝑃(𝑋)

Investment Plan Probability (𝑃(𝑋))
(𝑋)
10 0.2 2
20 0.2 4
30 0.2 6
Plan A (Bank A)
40 0.2 8
50 0.2 10
𝜇 = ∑[𝑋 ∙ 𝑃(𝑋)]=30

Plan B (Bank B) 30 0.2 6

15
 30 0.2 6
30 0.2 6
30 0.2 6
30 0.2 6
𝜇 = ∑[𝑋 ∙ 𝑃(𝑋)]=30

We see that both plans yield the same average ROI. At this point, this information should make us realize
that in terms of the ROI average, there is no plan that could be regarded as the better investment. However,
since a decision is not yet finalized, we can look at another aspect of this random phenomena through
making computations that will shed light on the means’ variability (computing for the variance or standard
deviation of the random variables). Recall that one of the things that the variance or standard deviation
tells us is the “consistency” or “closeness” of data points towards the mean. Note that using this measure
as basis for analysis is justified since the means of the two plans are the same.

Now, to compute for the variance and standard deviation, we do the following:
• First we add three more columns entitled “(𝑋 − 𝜇)”, “(𝑋 − 𝜇)2 ”, and “(𝑋 − 𝜇)2 ∙ 𝑃(𝑋)” on the right
side of the table we previously created accordingly.
• Next, we continue to fill out the table (tip: it will be easier to compute if we work by rows).
• Last, we compute for the sum of the last column to get the value of the variance, then we take the
principal square root of the variance to get the standard deviation.

ROI in
Investment Probability,
thousands 𝑋 ∙ 𝑃(𝑋) (𝑋 − 𝜇) (𝑋 − 𝜇)2 (𝑋 − 𝜇)2 ∙ 𝑃(𝑋)
Plan (𝑃(𝑋))
(𝑋)
10 0.2 2 10 − 30 = −20 (−20)2 = 400 400 ∙ 0.2 = 80

20 0.2 4 20 − 30 = −10 (−10)2 = 100 100 ∙ 0.2 = 20

30 0.2 6 30 − 30 = 0 (0)2 = 0 0 ∙ 0.2 = 0

Plan A 40 0.2 8 40 − 30 = 10 (10)2 = 100 100 ∙ 0.2 = 20

(Bank A) 50 0.2 10 50 − 30 = 20 (10)2 = 400 400 ∙ 0.2 = 80

𝜇 = ∑[𝑋 ∙ 𝑃(𝑋)] 𝜎 2 = ∑[(𝑋 − 𝜇)2 ∙ 𝑃(𝑋)]

𝜇 = 30 𝜎 2 = 200
𝜎 = 14.1421

30 0.2 6 30 − 30 = 0 (0)2 = 0 0 ∙ 0.2 = 0

30 0.2 6 30 − 30 = 0 (0)2 = 0 0 ∙ 0.2 = 0
Plan B
30 0.2 6 30 − 30 = 0 (0)2 = 0 0 ∙ 0.2 = 0
(Bank B)
30 0.2 6 30 − 30 = 0 (0)2 = 0 0 ∙ 0.2 = 0
30 0.2 6 30 − 30 = 0 (0)2 = 0 0 ∙ 0.2 = 0

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 𝜎 2 = ∑[(𝑋 − 𝜇)2 ∙ 𝑃(𝑋)]
𝜇 = ∑[𝑋 ∙ 𝑃(𝑋)]
𝜎2 = 0
𝜇 = 30 𝜎=0

An interpretation of this result could be the following:

Since the average ROI is the same for both plans, but Plan B has zero variability (that is, the value of both
the variance and standard deviation is zero (0)), then Plan B may be characterized as a “consistent” or
“stable” plan, which, to some people, is an indication of a good investment.

Thus, it is within our opinion to advise this young professional to invest in Bank B.

Example 1.3.2. The owner of a computer store chain is set to choose the “Top Branch of the Year” and his
decision is completely based on the over-all selling performance (number of laptops sold) for the past
twelve months. The table below shows the data of the two finalists. :

Branch A Branch B
No. of Months No. of Months
Number of Number of
Before the Before the
Laptops Sold Laptops Sold
Target was Met Target was Met
(𝑋) (𝑋)
(𝑓) (𝑓)
20 1 20 2
25 3 25 2
30 2 30 2
35 3 35 2
40 2 40 1
45 1 45 3

Help the owner determine the “Top Branch of the Year” using probability and statistics.

Solution to Example 1.3.2.

First, we compute for the mean:

Number of Probability,
Finalists No. of months, 𝑓 𝑋 ∙ 𝑃(𝑋)
laptops sold, 𝑋 𝑃(𝑋)
1
20 1 = 0.0833 1.6670
12
3
Branch A 25 3 = 0.2500 6.2500
12
2
30 2 = 0.1667 5.0000
12

17
 3
35 3 = 0.2500 8.7500
12
2
40 2 = 0.1667 6.6680
12
1
45 1 = 0.0833 3.7485
12

𝜇 = ∑[𝑋 ∙ 𝑃(𝑋)]
𝑁 = 12
=32.0835

2
20 2 = 0.1667 3.3340
12
2
25 2 = 0.1667 4.1675
12
2
30 2 = 0.1667 5.0010
12
2
35 2 = 0.1667 5.8345
Branch B 12
1
40 1 = 0.0833 3.3320
12
3
45 3 = 0.25 11.2500
12

𝜇 = ∑[𝑋 ∙ 𝑃(𝑋)]
𝑁 = 12
=32.9190

Based on these results, Branch B could be regarded as the “Top Branch of the Year”.

Remark. It should be interesting to consider, however, the consistency of sales, since the means are
relatively close to each other. The computation is given below:

Number of No. of Probability,

Finalists 𝑋 ∙ 𝑃(𝑋) (𝑋 − 𝜇) (𝑋 − 𝜇)2 (𝑋 − 𝜇)2 ∙ 𝑃(𝑋)
laptops sold, 𝑋 months, 𝑓 𝑃(𝑋)
1
20 1 = 0.0833 1.6660 −12.0835 146.0110 12.1627
12
3
25 3 = 0.2500 6.2500 −7.0835 50.1760 12.5440
12
2
30 2 = 0.1667 5.0010 −2.0835 4.3410 0.7236
12
3
Branch A 35 3 = 0.2500 8.7500 2.9165 8.5060 2.1265
12
2
40 2 = 0.1667 6.6680 7.9165 62.6710 10.4473
12
1
45 1 = 0.0833 3.7485 12.9165 166.8360 13.8974
12

𝑁 = 12 𝜇 = ∑[𝑋 ∙ 𝑃(𝑋)] 𝜎 2 = ∑[(𝑋 − 𝜇)2 ∙ 𝑃(𝑋)]

18
 =32.0835 𝜎 2 = 51.9015
𝜎 = 7.2042

2
20 2 = 0.1667 3.3340 −12.9190 166.9006 27.8223
12
2
25 2 = 0.1667 4.1675 −7.9190 62.7106 10.4539
12
2
30 2 = 0.1667 5.0010 −2.9190 8.5206 1.4204
12
2
35 2 = 0.1667 5.8345 2.0810 4.3306 0.7219
Branch B 12
1
40 1 = 0.0833 3.3320 7.081 50.1406 4.1767
12
3
45 3 = 0.25 11.2500 12.0810 145.9506 36.4876
12

𝜎 2 = ∑[(𝑋 − 𝜇)2 ∙ 𝑃(𝑋)]

𝜇 = ∑[𝑋 ∙ 𝑃(𝑋)]
𝑁 = 12 𝜎 2 = 81.0828
=32.9190 𝜎 = 9.0046

Since the means are relatively close to each other, and the results above show that Branch B has greater
variability compared to Branch A, thus, the owner could still consider Branch A to receive the “Top Branch
of the Year” award.

Example 1.3.3. You attended your school fair and a Cube Game (six-sided die game) caught your attention.
In this game, you roll a die you have to pay 20 php. If the die shows a “one” you win 100 php, otherwise
you lose. You have the money and time to spare; do you think it will be advantageous for you to play a
considerable number of games?

Solution to Example 1.3.3.

Recall that computing for the mean will give us an idea of our “expected winnings” if we played for large
number of times. This is exactly why the mean is also regarded as the “expected value”. Given this, we can
determine then whether it is advantageous for us to play a considerable of number of games if we can have
an idea of our expected winnings through computing for the mean.

Now, to compute for the mean, first, we let 𝑋 represent possible monetary outcomes for playing the game.
Clearly, the values of 𝑋 could be 80 php (this if you won; you get 100 php but recall that you paid 20 php
to play the game) and −20 php (if you lost). Similarly, we see that the total number of possible outcomes
is six (6). We can now construct our probability distribution that contains the 𝑋 ∙ 𝑃(𝑋) column:

Possible
𝑋 𝑃(𝑋) 𝑋 ∙ 𝑃(𝑋)
outcomes
1
1 80 = 0.1667 13.34
6
5
2, 3, 4, 5, 6 −20 = 0.8333 -16.67
6
𝐸 (𝑥 ) = ∑ 𝑥 ∙ 𝑃 (𝑥 )
𝐸(𝑥) = −3.33
19
The negative (−) sign on the expected value means that you will lose in the “long run” or alternatively, it
means that the game is designed so that the house always wins.

As such, we conclude that it is not advantageous to play a considerable number of games.

Example 1.3.4. With the same game as Example 1.3.3., let us modify as follows: To play the game you have
to pay 20 php. If the die shows a “one” you win P120, else you lose. Do you think you will win in the long
run?

Solution to Example 1.3.4.

Possible
𝑋 𝑃(𝑋) 𝑋 ∙ 𝑃(𝑋)
outcomes
1
1 120 − 20 = 100 = 0.1667 16.67
6
5
2, 3, 4, 5, 6 −20 = 0.8333 −16.67
6
𝐸 (𝑥 ) = ∑ 𝑥 ∙ 𝑃 ( 𝑥 )
𝐸(𝑥) = 0

The expected value of this game is 0, which means that theoretically, you will even out your winnings and
losses in the long run. Perhaps, a wasted effort, that is.

Remark. A game is said to be “fair” if the expected value is 0. For the most part of playing a gambling game,
you will not find this type of game of chance where the expected value is equal to 0. Most games of chance
are designed in favor of the house or banker.

Example 1.3.5. The organizing committee of a high school reunion placed 150 balls inside a box. Ten of the
balls are red, five are blue, one is gold, and the rest are white. A player has a chance to draw one ball from
the box. A red ball will win P500, a blue ball will win him P1000, and the single gold ball can win him a
prize of P5000. However, he will not win anything if he draws a white ball. What would be the fair price
to pay for a chance to draw a ball from the box?

Solution to Example 1.3.5.

Let 𝑋 represent the possible monetary winnings of the game considering that no playing fee is involved.
Clearly, 𝑋 = 500, 1000, and 5000. Further, since there are 150 balls in total, this means that 𝑁 = 150. Now,
we create the probability distribution accordingly.

Possible
𝑋 𝑃(𝑋) 𝑋 ∙ 𝑃(𝑋)
Outcomes
10
Red – 10 balls 500 = 0.0667 33.35
150
5
Blue – 5 balls 1000 = 0.0333 33.30
150
1
Gold – 1 ball 5000 = 0.0067 33.50
150

20
 134
White – 134 balls 0 = 0.8933 0
150
𝐸 (𝑥 ) = ∑ 𝑥 ∙ 𝑃 (𝑥 )
𝐸(𝑥) = 100.15

Thus, if the organizing committee wants to profit from this game, the price to play the game should be
greater than 100.15 php (or alternatively, greater than 100 php).

Example 1.3.6. A car insurance company offers to pay 500,000 php if a car is stolen or is destroyed beyond
repair. The insurance policy costs 24,000 php and company research shows that the probability that the
company will need to pay the amount of insurance is 0.002. Find the expected value of the insurance to
car owners.

Solution to Example 1.3.6.

Let 𝑋 represent the value of the insurance from the perspective of the car owner. If a car is stolen or
destroyed completely, then its value is represented by:

(Insurance) − (Insurance Policy Amount)

500,000 − 24,000 = 476,000 php

Further, say that during the entire life of the policy, a car owner did not meet such accidents, the value of
insurance is −24,000 php. We construct the probability distribution as follows:

𝑋 𝑃(𝑋) 𝑋 ∙ 𝑃(𝑋)

500,000 − 24,000 = 476,000 0.002 952

−24,000 0.998 −23,952

𝐸 (𝑋) = −23,000

Therefore, the expected value of the insurance to the car owner is −23,000 php. The negative expected
value shows that the policy is designed to the advantage of the insurance company. Car owners still buy
these insurance policies because the security it provides in the event of a loss is worth the cost to them.

Supplementary Exercises

1. A salesperson has found that the probability of making various numbers of sales per day, given that
calls on 10 sales prospects can be made, is presented in the table below. Calculate the average
number of sales per day, variance and the standard deviation of the number of sales. Use the table
below to show your solution.
2.
Sales per day when 10 prospects are contacted

Number of Sales, 𝑋 1 2 3 4 5 6 7 8

21
 Probability, 𝑃(𝑋) 0.04 0.15 0.20 0.25 0.19 0.10 0.05 0.02

𝑋 Probability, 𝑃(𝑋) 𝑋 ∙ 𝑃(𝑋) (𝑋 − 𝜇) (𝑋 − 𝜇)2 (𝑋 − 𝜇)2 ∙ 𝑃(𝑋)

Determine the following:

a. Average number of sales per day
b. Variance of the number of sales
c. Standard deviation of the number of sales

3. The arrival of customers during randomly chosen 10-min intervals at a drive-in facility specializing
in photo development and film sales has been found to follow the probability distribution in the
following table. Calculate the expected number of arrivals for 10-min intervals and the standard
deviation of the arrivals. Use the table below to show your solution.

Arrivals of Customers at a Photo-processing Facility during 10-min Intervals

Number of arrivals, 𝑋 0 1 2 3 4 5
Probability, 𝑃(𝑋) 0.15 0.25 0.25 0.20 0.10 0.05

𝑋 Probability, 𝑃(𝑋) 𝑋 ∙ 𝑃(𝑋) (𝑋 − 𝜇) (𝑋 − 𝜇)2 (𝑋 − 𝜇)2 ∙ 𝑃(𝑋)

22
 Determine the following:
a. Expected number of arrivals for 10-min intervals
b. Variance of arrivals for 10-min intervals
c. Standard deviation of arrivals for 10-min intervals

4. A company makes electronic gadgets. One out of every 50 gadgets is faulty, but the company doesn't
know which ones are faulty until a buyer complains. Suppose the company makes a 150 php profit
on the sale of any working gadget, but suffers a loss of 4000 php for every faulty gadget because
they have to repair the unit. Check whether the company can expect a profit in the long term.

5. A local club plans to invest 10,000 php to host a baseball game. They expect to sell tickets
worth 15,000 php. But if it rains on the day of the game, they won't sell any tickets and the club will
lose all the money invested. If the weather forecast for the day of the game is a 20% possibility of
rain, is this a good investment?

Enrichment

Determining the Expected Value, Variance and Standard Deviation of Discrete Probability Distributions
using a Scientific Calculator

There are a myriad of brands and models of scientific calculators. They also have different ways of finding
the mean, variance, and standard deviation. The succeeding examples will give you an illustration (two
types of calculators) on how to use the function of your calculator in finding the mean, variance and
standard deviation.

Let us go back to Example 1.3.1. Using the Statistics function of our calculator, let us determine the mean,
variance and standard deviation.

Investment Plans ROI in thousands, 𝑋 Probability, 𝑃(𝑋)

10 0.2
20 0.2
Plan A (Bank A) 30 0.2
40 0.2
50 0.2

Casio Classwiz, other similar models

• Turn on the frequency:
press
- Shift
- Setting / set-up
- Frequency: ON
• Menu
press
- Statistics
23
 - 1-variable
• Enter all the values of 𝑥 𝑎𝑛𝑑 𝑃(𝑥)
press
- OPTN
- 1-variable
- Values for: mean, variance, std. dev.

Casio FX-991ES, FX-350ES, other similar models

• Turn on the frequency:
press
- Shift
- Setting / set-up
- stat
- Frequency: ON
• Mode
press
- Stat
- 1-var
• Enter all the values of 𝑥 𝑎𝑛𝑑 𝑃(𝑥)
press
- AC
- Shift
- 1
- Var
- Mean, 𝑥̅
- AC
- Shift
- 1
- Std. Dev., 𝜎𝑥
• Values for: mean, std. dev.
• To compute for the variance, simply square the std. dev.

- End of the Lecture Transcript -

24