KENYATTA UNIVERSITY

SCHOOL OF BUSINESS

DEPARTMENT OF MANAGEMENT SCIENCE

BMS 840: QUANTITATIVE TECHNIQUES

By: DR. VINCENT S. MUTSWENJE

VETTER: DR. SALOME MUSAU

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 INTRODUCTION

During the last two decades, there has been a dramatic change in the business

environment. The trend towards complexity has increased the risk associated with

business decisions, making it more important to have a sound information base. To do

well in such an environment, one will need to understand how to identify quality

information and recognize the solid, reliable research on which one’s high-risk decisions

as a manager can be based. One also needs to know how to analyze the research findings.

The study of quantitative techniques provides one with the knowledge and skills needed

to solve the problems and the challenges of a fast-paced decision-making environment.

Managers make decisions on a day to day basis and it is necessary for them to be able to

analyze the data so as to be able to make optimal decisions.

We hope you will find this module interactive, educative and more importantly,

applicable to the day to day operations of the business in the face of economic

uncertainties that globally face the world of business.

QUANTITATIVE TECHNIQUES FLOW CHART

WEEK TOPIC

WEEK 0: INTRODUCTION (YOUR CONTEXT, YOUR GOALS, THOUGHTS

ABOUT ACCOUNTING)
WEEK 1: INTRODUCTION TO QUANTITATIVE TECHNIQUES

WEEK 2: DESCRIPTIVE STATISTICS

WEEK 3: PROBABILITY THEORY

WEEK 4: PROBABILITY DISTRIBUTION

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WEEK 5: SAMPLING AND ESTIMATION THEORY

WEEK 6: HYPOTHESIS TESTING

WEEK 7: REGRESSION AND CORRELATION ANALYSIS

WEEK 8&9: CALCULUS

WEEK 10 LINEAR PROGRAMMING

WEEK 11&12 EXAMINATION

OVERVIEW OF THE COURSE

Week 0: Introduction (Your Context, Your Goals)
This lesson is intended to help you acclimatize to blended learning and to create a
community of learners who will motivate each other during the course. You will be
required to introduce yourself to your lecturer and colleagues either physically during a
face to face session or even online before other academic interactions start. It will be
important to also state your context and goals as well as what you think about accounting.
You can also share any experience that you may have regarding businesses.
Week 1: Introduction to Quantitative Techniques.
In this lesson, we lay the foundation for the entire course by defining the concept
quantitative techniques. Throughout our teaching experiences, we have found that an
understanding of the basic principles behind the subject and their applications increases
the students’ motivation for the subject. We therefore introduce you to the concept of
quantitative techniques and how descriptive and inferential statistics are measured.
Week 2: Descriptive statistics
In this lesson, we introduce the lesson by defining the concept descriptive statistics. We
therefore introduce you to the concept of descriptive statistics by looking at central
tendency measures and measures of dispersion.
Week 3: Probability Theory
In this lesson, we introduce the lesson by defining the concept of probability theory. We
therefore introduce you to the concept of probability theory and rules for computing
probability.
Week 4: Probability Distribution

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In this lesson, we introduce the lesson by defining the concept probability distribution.
We therefore introduce you to the concept of probability distribution, binomial
probability distribution and normal probability distribution.
Week 5: Sampling and Estimation Theory
In this lesson, we lay the foundation for the entire lesson by defining the concept
sampling theory and estimation theory. Throughout our teaching experiences, we have
found that an understanding of the basic principles behind the subject and their
applications increases the students’ motivation for the subject. We therefore introduce
you to the concept of sampling theory and estimation theory.
Week 6: Hypothesis Testing
In this lesson, we introduce the entire lesson by defining the concept hypothesis testing.
We therefore introduce you to the concept of hypothesis testing.
Week 7: Regression and Correlation Analysis
In this lesson, we introduce the lesson by defining the concept of regression analysis. We
therefore introduce you to the concept of regression and correlation analysis.
Week 8: Calculus
In this lesson, we introduce the lesson by defining the concept of calculus. We therefore
introduce you to the concept of differentiation and integration.
Week 9: Linear Programming
In this lesson, we introduce the lesson by defining the concept of linear programming.
We therefore introduce you to the concept of linear programming and solutions to Linear
Programming problems.
Week 11&12: Examination
These two weeks bring together the work you have been doing to an end. This course
unit will be examined and will partially contribute to the award of the degree in the
programme that you are undertaking. We have placed examinations in the last two weeks
but Universities are allowed to go with their schedules. Your university examinations
regulations will apply.

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 MODULE LEARNING OUTCOMES
By the end of this module, you will be able to:

1. Explain the concept of quantitative techniques

2. Evaluate measures of central tendency and dispersions,

3. Apply the concept of probability

4. Differentiate various functions and apply to cost, revenue and profit functions

5. Apply integral calculus to profit and cost functions

6. Explain the various sampling techniques

7. Calculate the point and interval estimates of population mean and proportions

8. Test hypothesis about means, proportions and variance

9. Formulate and solve Linear programming using the graphical and simplex

method.

COURSE DESCRIPTION

This is a common course unit meant for students who are taking a master of business

degree. The course is taken in the first semester of their first year of study. The general

purpose of the course is to equip the student with the understanding of the importance of

organising and analysing data using appropriate statistical tools to facilitate

Interpretation , drawing inferences and conclusions from the analyzed data. The course

will enhance application of the various statistical tools in solving business problems

and decision-making.

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The course will take you 39 instructional hours some of which will be covered face to

face and others in online activities. You will therefore be required to set aside about 5

hours per lesson to complete this course successfully.

COURSE REQUIREMENTS

This is a blended learning course that will utilize the flex model. This means that learning

materials and instructions will be given online and the lessons will be self-guided with

the lecturer being available briefly for face to face sessions and support and also on-site

(online) most of the time. Your lecturer will be meeting you face to face to introduce a

lesson and put it into perspective and you will actively participate in your search for

knowledge by undertaking several online activities. This means that some of the 39

instructional hours of the course will be delivered face to face while other lessons will be

taught online through various learner and lecturer activities. It is important for you to

note that one instructional hour is equivalent to two online hours. Three instructional

hours will be needed per week. Out of these, one will be used for face to face contact

with your lecturer (also referred as e-moderator in the online activities) while the other

two instructional hours (translating to four online hours) will be used for online activities

otherwise referred to as e-tivities in the lessons. This will add up to the 5 hours

requirement per lesson earlier mentioned. There are 27 online activities each taking at

least two hours and totaling to 54 online hours. You are advised to follow the topic flow-

chart given so that you cover at least a lesson every week.

You will be required to participate and interact online with your peers and the e-

moderator who in this case is your lecturer. Guidelines for the online activities (which we

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shall keep referring to as e-tivities) will be provided whenever there is an e-tivity. Please

note that since the online e-tivities are part of the learning process, they may be graded at

the discretion of your e-moderator. Such grading will however be communicated in the e-

tivity guidelines and feedback given as soon as possible after the e-tivity. The e-tivities

will include but will not be limited to online assessment quizzes, assignments and

discussions. There are also assessment questions that you can attempt at the end of every

lesson to test your understanding of the lesson. All the resource that have been used in

this module in form of books are available under the resources section after the answers

to the questions.

ASSESSMENT

The assessment will include online discussions forums that focus on team learning and

personal mastery and will therefore provide you with peer feedback, lecturer assessment

and self- reflection. The online activities will be accessed on the basis of the level of

participation of each student as an individual and also as a member of a group and will

account for 40% of your course work. Your final examination will account for the

remaining 60% to make it a 100% total.

We wish you success.

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 TABLE OF CONTENTS
Introduction....................................................................................................................2

Quantitative Techniques Flow Chart.............................................................................2

Module Learning Outcomes.......................................................................................... 2

Course Description........................................................................................................ 2

Course Requirements.....................................................................................................2

Assessment.................................................................................................................... 2

LESSON ONE: INTRODUCTION...................................................................6

1.1 Introduction to Quantitative Techniques 6

1.2 Learning outcomes 6

1.2.1 Concept of quantitative techniques. 6

1.3 Assessment questions. 8

1.4 E-references 8

LESSON TWO: DESCRIPTIVE STATISTICS 8

2.1 Introduction. 8

2.2 Learning outcomes. 9

2.2.1 Concept of descriptive statistics. 9

2.2.2 Measures of central tendency. 10

2.2.3 Measures of dispersion. 14

2.3 Assessment questions. 17

2.4 E-references 17

LESSON THREE: PROBABILITY THEORY. 17

3.1 Introduction 17

3.2 Learning outcomes.....................................................................................17

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 3.2.1 Concept of probability theory.................................................................17

3.2.2 Rules of computing probability theory 18

3.3 Assessment questions. 20

3.4 E-references 20

LESSON FOUR: PROBABILITY DISTRIBUTION 21

4.1 Introduction. 21

4.2 Learning outcomes 21

4.2.1 Concept of probability distribution 21

4.2.2. Binomial probability distribution 23

4.2.3 Normal probability distribution. 25

4.3 Assessment questions. 26

4.4 E-references 26

LESSON FIVE: SAMMPLING AND ESTIMATION THEORY. 27

5.1 Introduction 27

5.2 Learning outcomes. 27

5.2.1 Sampling theory 27

5.2.2 Estimation theory....................................................................................29

5.3 Assessment questions. 32

5.4 E-references 32

LESSON SIX: HYPOTHESIS TESTING.......................................................32

6.1 Introduction 32

6.2 Learning outcomes 32

6.2.1 Evaluation of hypothesis testing 33

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 6.3 Assessment questions. 36

6.4 E-references 36

LESSON SEVEN: REGRESSION AND CORRELATION ANALYSIS3.

36

7.1 Introduction 36

7.2 Learning outcomes 36

7.2.1 Regression analysis 36

7.2.2 Correlation analysis 39

7.3 Assessment questions. 41

7.4 E-references 41

LESSON EIGHT: CALCULUS 41

8.1 Introduction. 41

8.2 Learning outcomes 41

8.2.1 Differentiation. 41

8.2.2 Integration 47

8.3 Assessment questions. 49

8.4 E-references 49

LESSON NINE: LINEAR PROGRAMMING. 50

9.1 Introduction 50

9.2 Learning outcomes 50

9.2.1 Concept of linear programming 50

9.2.2 Solving linear programming problems 51

9.3 Assessment questions. 54

9.4 E-references 54

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 LESSON ONE

INTRODUCTION TO QUANTITITAVE TECHNIQUES

1.1 Introduction

In this lesson, we lay the foundation for the entire course by defining the concept
quantitative techniques. Throughout our teaching experiences, we have found that an
understanding of the basic principles behind the subject and their applications increases
the students’ motivation for the subject. We therefore introduce you to the concept of
quantitative techniques and how descriptive and inferential statistics are measured.

1.2 Lesson Learning Outcomes

By the end of this lesson, you will be able to:
1.2.1 Explain the concept of quantitative techniques

1.2.1 CONCEPT OF QUANTITATIVE TECHNIQUES (STATISTICS)

It is the science of collecting, organizing, presenting, analysing and interpreting data to

assist in making more effective decisions. It is divided into:
(a) Descriptive statistics: it’s a tabular, graphical and numerical method for
organizing and summarizing information clearly and effectively relating to either a
population or sample.
(b) Inferential statistics: are the methods of drawing and measuring the reliability of
conclusions about a statistical population based on information from a sample data
set.

Variable:

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A variable is a measurable characteristic that assumes different values among the
subjects. It is divided into:
(a) Independent variables: Variable that a researcher manipulates in order to determine
its effect or influence on another variable.
(b) Dependent variables: Variable that is measured, predicted or monitored and is
expected to be affected by manipulation of an independent variable.
Variables can either be: -
i. Qualitative variables: Variables that are non-numeric i.e. attributes e.g.
Gender, Religion, Colour, State of birth etc.
ii. Quantitative variables: Are numeric variables. They can either be discrete
or continuous.
 Discrete variables: Variables, which can only assume certain
values i.e. whole numbers.
 Continuous variables: Variables, which can assume any value
within a specific range e.g. height, temperature, weight, radius etc.

Levels of measurement
There are four levels of measurement;
(a) Nominal level. The observations are classified under a common characteristic e.g.
sex, race, marital status, employment status, language, religion etc.
(b) Ordinal level: Items or subjects are ranked into some order e.g. greater than, less
than, superior, happier than, poorer, above etc. helps in developing a Likert scale.
(c) Interval level: Numerals are assigned to each measure and ranked. The intervals
between numerals are equal e.g. test scores, temperature.
(d) Ratio level: Has all the characteristics of the other levels and in addition the zero
point is meaningful e.g. height, weight, distance, age, area etc.

E-tivity 1.2.1 – Concept of quantitative techniques

Numbering, pacing and 1.2.1

sequencing
Title Concept of quantitative techniques
Purpose The purpose of this e-tivity is to enable you to explain
Concept of quantitative techniques

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 Brief summary of overall Watch video and video 2 on this link and define the
task concept statistics

Spark

Individual task (a) In point form, outline the key characteristics of

statistics
(b) Briefly highlight the uses of statistics
Interaction begins

a) Under discussion forum 1.2.1 indicate the key

elements of a variable.
b) Still on discussion forum, indicate the differences
between quantitative and qualitative variables

E-moderator interventions 1) Ensure that learners are focused on the contents and
context of discussion.
2) Stimulate further learning and generation of new
ideas.

3) Provide feedback on the learning progress.

4) Close the e-tivity

Schedule and time This task should take one hour

Next
Descriptive Statistics

1.3 Assessment Questions

1. Describe statistics

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  It is the science of collecting, organizing, presenting, analysing and interpreting
data to assist in making more effective decisions.
2. Discuss levels of measurement
 Nominal level. The observations are classified under a common
characteristic e.g. sex, race, marital status, employment status, language,
religion etc. helps in sampling.
 Ordinal level: items or subjects are not only grouped into categories, but
they are ranked into some order e.g. greater than, less than, superior,
happier than, poorer, above etc. helps in developing a likert scale.
 Interval level: numerals are assigned to each measure and ranked. The
intervals between numerals are equal. The numerals used represent
meaningful quantities but the zero point is not meaningful e.g. test scores,
temperature.
 Ratio level: has all the characteristics of the other levels and in addition
the zero point is meaningful. Mathematical operations can be applied to
yield meaningful values e.g. height, weight, distance, age, area etc.

3. Highlight the limitations of statistics

 Deals with aggregate facts and not individual items.
 Deals mainly with quantitative characteristics and not qualitative characteristics
like honesty, efficiency etc.
 The results are only true on an average and under certain conditions.
 Statistics can be misused i.e. wrong interpretation. It requires experience and skill
to draw sensible conclusions from the data.
 Statistics may not provide the best solution under all circumstances

1.4 E-References
1. https://www.youtube.com/watch?v=SFPGVTThJNk
2. https://www.youtube.com/watch?v=hZxnzfnt5v8

LESSON TWO

DESCRIPTIVE STATISTICS
2.1 Introduction

In this lesson, we introduce the lesson by defining the concept descriptive statistics. We
therefore introduce you to the concept of descriptive statistics by looking at central
tendency measures and measures of dispersion.

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2.2 Lesson Learning Outcomes
By the end of this lesson, you will be able to:
2.2.1 Explain the concept of descriptive statistics
2.2.2 Calculate measures of central tendency
2.2.3 Compute measures of dispersion

2.2.1 DESSCRIPTIVE STATISTICS

Descriptive statistics is used to summarize data and make sense out of the raw data
collected during the research.

Graphical representation of a frequency distribution include Histogram, Frequency

polygons, Cumulative frequency polygons (Ogive curve), Line charts, Bar
chart etc.

Example
(a) The data below indicates the marks attained by students in a statistical test.
Construct a frequency distribution table with 10 classes
12 24 40 50 56 72
8 25 42 50 59 76
18 25 44 52 60 83
5 32 46 53 66 95
15 40 48 55 68 98

(b) From the above: construct a histogram, frequency polygons and curves,
cumulative frequency curves.

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E-tivity 2.2.1 – Descriptive statistics

Numbering, pacing and 2.2.1

sequencing
Title Concept of Descriptive statistics
Purpose The purpose of this e-tivity is to enable you to explain
Concept of Descriptive statistics
Brief summary of overall Watch Video on this link and define and explain
task descriptive statistics

Spark

Individual task (a) Using bullet points, outline the key themes in the
Concept of Descriptive statistics
(b) Briefly highlight the decision areas in Concept of
Descriptive statistics
Do this on discussion forum 2.2.1
Interaction begins

a) Using the example given generate histogram,

cumulative frequency curve, frequency polygons, bar
charts, graphs

E-moderator interventions 1) Ensure that learners are focused on the contents and
context of discussion.

2) Stimulate further learning and generation of new

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 ideas.

3) Provide feedback on the learning progress.

4) Close the e-tivity

Schedule and time This task should take one hour

Next
Measures of central tendency

2.2.2 MEASURES OF CENTRAL TENDENCY

Central tendency is the tendency of observations to cluster near the central part of the
distribution. Measures of central tendency are the measures of location e.g. mean, mode
and median.

Forms of averages
(a) Arithmetic mean or simple average
(b) Median
(c) Mode
(d) Geometric mean
(e) Harmonic mean

THE ARITHMETIC MEAN

It is obtained by summing up the values of all the items of a series and dividing this sum
by the number of items.
Individual series:-
Direct method

where = arithmetic mean , = number of items

Grouped series
Direct method

Where = frequencies, = number of items

THE MEDIAN
The median is the middle value of a series arranged in ascending or descending order. If

there are observations, the median is the value of the item.

Computation of the median in discrete series

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  Arrange the items in descending or ascending order with their corresponding
frequencies against them.
 Compute the cumulated frequencies and then locate the middle item.
Computation of the median in Continuous series
The median has to be interpolated in the class interval containing the median using the
formula:-

Median =

Where:
L= lower class boundary
n= total number of values
B= cumulative frequency of the group before the median group
G= frequency of the median group
W= class width
THE MODE
The mode is the value, which occurs most often in the data.

Mode =

Where:

 L is the lower-class boundary of the modal group

 fm-1 is the frequency of the group before the modal group
 fm is the frequency of the modal group
 fm+1 is the frequency of the group after the modal group
 w is the group width

GEOMETRIC MEAN
Geometric Mean is the nth root of the product of n values i.e.
For ungrouped data Grouped data

G.M = Antilog of G.M = Antilog of

HARMONIC MEAN
It is the reciprocal of the arithmetic mean of the reciprocal of a series of observations.
Ungrouped data

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 H.M =

Grouped data

H.M =

Exercise

The following is the frequency distribution of marks for a test done by statistic
students.
Class interval 21-25 26-30 31-35 36-40 41-45 46-50
Frequency 14 15 22 19 17 13

Required
Calculate the:
a) Mean
b) Median
c) Mode
d) Geometric mean
e) Harmonic mean
f) Standard deviation
g) Skewness

E-tivity 2.2.2 – Measures of central tendency

Numbering, pacing and 2.2.2

sequencing
Title Measures of central tendency
Purpose The purpose of this e-tivity is to enable you to explain
and evaluate Measures of central tendency

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Brief summary of overall Watch video1, video2, video3, video4 and video5 on this
task link and evaluate Measures of central tendency

Spark

Individual task (a) Using bullet points, define mean, mode, median,
harmonic mean and geometric mean
(b) Briefly highlight the decision areas in the Measures
of central tendency
(c) Highlight forms of mode
Do this in discussion forum 2.2.2
Interaction begins

a) Using the example given in section 2.2.1 compute

mean, mode, median, harmonic mean and geometric
mean

E-moderator interventions 1) Ensure that learners are focused on the contents and
context of discussion.

2) Stimulate further learning and generation of new

ideas.

3) Provide feedback on the learning progress.

4) Close the e-tivity

Schedule and time This task should take three hour

Next
Measures of dispersion

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2.2.3 MEASURES OF DISPERSION
Definition of dispersion
 It is the degree to which numerical data tends to spread about an average value.
Measures of dispersion include range, quartile, mean deviation and standard
deviation

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The Range: it is the difference between the smallest score and the largest score in a series

The standard deviation

It measures how much variability is present in the sample.
Ungrouped data

where = sum of squares of the deviations from arithmetic mean

Grouped data

Examples
1. The following marks belong to 99 students of a secondary school in Keroka Municipality
Marks Number of students
0 – 10 10
10 – 20 ?
20 – 30 25
30 – 40 30
40 – 50 ?
50 – 60 10
On later analysis, it was discovered that two class interval frequencies were missing.
The median score was found to be 30.
Required:
i. Find the missing frequencies.
ii. Determine the modal mark of the students
iii. Find the mean mark
iv. Find the standard deviation.

SKEWNESS AND KURTOSIS IN STATISTICS

Skewness
Skewness means lack of symmetry. A distribution is said to be symmetrical when the values
are uniformly distributed around the mean. In a symmetrical distribution the mean, median
and mode coincide, that is, mean = median = mode.

For a symmetric distribution Sk = 0. If the distribution is negatively skewed then Sk is negative

and if it is positively skewed then Sk is positive. The range for Sk is from -3 to 3.
Kurtosis
Is a measure of the peakness or convexity of a curve.
Kurtosis is measured by Pearson’s coefficient, b2 (read ‘beta - two’). It is given by

.
The distribution is called normal if b2 = 3. When b2 is more than 3 the distribution is said to
be leptokurtic. If b2 is less than 3 the distribution is said to be platykurtic.

E-tivity 2.2.3 – Measures of dispersion

Numbering, pacing and 2.2.3

sequencing
Title Measures of dispersion
Purpose The purpose of this e-tivity is to enable you to explain
and evaluate Measures of dispersion
Brief summary of overall Watch video1 and video2 on this link and evaluate the
task Measures of dispersion

Spark

Individual task (a) Using bullet points, outline the key themes in the
Measures of dispersion
(b) Briefly highlight the decision areas in the Measures
of dispersion
(c) Explain the forms of symmetrical curves
Do this in discussion forum 2.2.3
Interaction begins

a) Using the example given on Keroka municipality

compute standard deviation
 E-moderator interventions 1) Ensure that learners are focused on the contents and
context of discussion.

2) Stimulate further learning and generation of new

ideas.

3) Provide feedback on the learning progress.

4) Close the e-tivity

Schedule and time This task should take one hour

Next
Probability theory

2.3 Assessment Questions

1. Explain descriptive statistics
 it’s a tabular, graphical and numerical method for organizing and summarizing
information clearly and effectively relating to either a population or sample.
2. Explain methods of presenting frequency distribution data
 Histogram: It is a graph in which classes are marked on the horizontal axis and the
class frequencies on the horizontal axis and the class frequencies on the vertical axis.
The class frequencies are represented by the heights of the bars and the bars are drawn
adjacent to each other.
 Frequency polygons: The class midpoints are connected with a line segment.
 Cumulative frequency polygons
 Bar chart: Make use of rectangles to present the given data. Can be vertical,
horizontal or component.
 Graphs
3. Highlight the significance of measuring dispersion
 To determine the reliability of an average
 To serve as a basis for the control of the variability
 To compare two or more series with regard to their variability
 To facilitate the use of other statistical measures

4. Explain the properties of a good dispersion

 Simple to understand
 Easy to compute
 Rigidly defined etc

2.4 E-References
1. https://www.youtube.com/watch?v=wN85HOJuux4
2. https://www.youtube.com/watch?v=eVKOi2-kA8c
3. https://www.youtube.com/watch?v=ibGI_jd82TA
4. https://www.youtube.com/watch?v=eBtNbZPW178
5. https://www.youtube.com/watch?v=gDbLnCWyGCk
6. https://www.youtube.com/watch?v=A_Rk_4Qts6I
7. https://www.youtube.com/watch?v=3I2KsTR2WA8

8. https://www.youtube.com/watch?v=X3nQMiBK9rc

LESSON THREE
PROBABILITY THEORY
3.1 Introduction

In this lesson, we introduce the lesson by defining the concept of probability theory. We
therefore introduce you to the concept of probability theory and rules for computing
probability.

3.2 Lesson Learning Outcomes

By the end of this lesson, you will be able to:
3.2.1 Explain the concept of probability theory
3.2.2 Rules for computing probability

3.2.1 CONCEPT OF PROBABILITY THEORY

Definition. It’s a value between zero and one inclusive, describing the relative possibility
(chance or likelihood) that an event will occur.
Approaches to Assigning Probability
There are three approaches to probability
(a) Classical probability: It’s based on the assumption that the outcomes of an experiment
are equally likely.
No.offavourableoutcomes
Probability of an event =
Tota ln o.ofpossibleoutcomes
(b) Empirical probability: the probability of an event occurring is determined by observing
what fraction of the time similar events happened in the past.
No.oftimeseventsoccured int hepast
Probability of an event =
Tota ln o.ofobservations
(c) Subjective probability: The likelihood of a particular event happening is assigned by an
individual based on whatever information is available.

3.2.2 RULES FOR COMPUTING PROBABILITIES

1. Rule of addition
If two events A and B are mutually exclusive, the probability of one or the other event’s
occurring equals the sum of their probabilities.
P ( AorB )  P ( A)  P ( B )
If the two events are not mutually exclusive
P ( AorB)  P ( A)  P ( B )  P ( AandB)

Example
In a class of 20 children, 4 of the 9 boys and 3 of the 11 girls are in the athletics team. A
person from the class is chosen to be in the ‘egg and spoon’ race on the sports day. Find the
probability that the person chosen is: -
(a) In the athletics team
(b) Female
(c) A female member of the athletics team
(d) A female or in the athletics team

2. The complement Rule

It is used to determine the probability of an event occurring by subtracting the probability of
the event not occurring from one.
Examples
1. In a survey, 15% of the participants said that they had never bought lottery tickets or
premium bonds, 73% had bought lottery tickets and 49% had bought premium bonds.
Find the probability that a person chosen at random from those taking part in the survey
had bought: -
i. Lottery tickets or premium bonds
ii. Lottery tickets and premium bonds
iii. Lottery tickets only

3. Rules of multiplication
It is used to find the joint occurrence of two or more events.
If two events A and B are independent
P ( AandB )  P ( A) * P ( B )
If two events A and B are dependent
P ( AandB)  P ( A) * P ( B / A)
P ( B / A) is the probability of B occurring given that A has already occurred
P ( BandA)  P ( B ) * P ( A / B )
Conditional probability
It is the probability of a particular event occurring given that another event has occurred.
 P( AandB) P( BandA)
P( A / B)  P( B / A) 
P( B) P( A)

Example
1. A computer software supplier has developed a new record keeping package for use by
hospitals. The company feels that the probability that the new package will show a profit
in its first year is 0.6 unless a competitor introduces a product of comparable quality this
year, in which case the probability of a first year drops to 0.3. The supplier suggests that
there is a 50 – 50 chance that a comparable product will be introduced this year. Defining
the above events as follows: -
A – A competitor introduces a comparable product
B- The record keeping package is profitable in its first year
What is the probability that? -
(a) Both A and B will occur?
(b) Either A or B will occur?
Baye’s Theorem
If Ai is one of the n mutually exclusive events A1 , A2 ........ An at the first stage and B is an
event at the second stage, then
P ( Ai ) * P ( B / Ai )
P ( Ai / B ) 
[ P ( A1 ) * P ( B / A1 )]  [ P ( A2 ) * P ( B / A2 )  .........  [ P ( An ) * P ( B / An )]
P ( Ai and B)
 P ( Ai / B ) 
P(B)
Examples: -
1. Each morning coffee is prepared for the entire office by one of three employees,
depending on who first arrives at work. Karen arrives first 20% of the time, Gideon and
Michael are each the first to arrive on half of the remaining mornings. The probability
that the coffee is bitter when it is prepared by Karen is 0.1 while the corresponding
probabilities when it is prepared by Gideon and Michael are 0.2 and 0.3 respectively.
Required:
i. If you arrive one morning and find the coffee is bitter, what is the probability that
it was prepared by Karen?
ii. What is the probability that the coffee will not be bitter on a given morning?

E-tivity 3.2.1&2 – Probability theory

Numbering, pacing and 3.2.1&3.2.2

sequencing
Title Probability theory
Purpose The purpose of this e-tivity is to enable you to explain
 Concept of Probability theory
Brief summary of overall Watch video on this link and define the concept of
task Probability theory

Spark

Individual task (a) Using bullet points, outline the key themes in the
Concept of Probability theory
(b) Briefly highlight the decision areas in Concept of
Probability theory
Do this in discussion forum 3.2.1
Interaction begins

a) After watching the video use the examples given

and determine their probabilities

E-moderator interventions 1) Ensure that learners are focused on the contents and
context of discussion.

2) Stimulate further learning and generation of new

ideas.

3) Provide feedback on the learning progress.

4) Close the e-tivity

Schedule and time This task should take one hour

Next
Probability distributions

3.3 Assessment Questions

1. Define probability theory
 It’s a value between zero and one inclusive, describing the relative possibility (chance
or likelihood) that an event will occur.
 2. Explain terms used in probability theory
 Experiment: It’s a process or course of action that results in one of a number of
possible outcomes. The outcome that occurs cannot be predicted with certainty e.g.
tossing a coin.
 Outcome: It’s a particular result of an experiment e.g. getting a head
 Event: it’s a collection of one or more outcomes of an experiment.
 Sample space: It’s a list of all possible outcomes of the experiment. The outcomes
listed must be mutually exclusive and exhaustive.
 Mutually exclusive events: They are events which cannot occur at the same time i.e.
when one event occurs, none of the other events can occur at the same time.
 Independent events: -two events are independent if the occurrence of one event does
not alter the probability of the other event.

3.4 E-References
1. https://www.youtube.com/watch?v=F5TDpbPSy1w

LESSON FOUR

PROBABILITY DISTRIBUTIONS
1.1 Introduction

In this lesson, we introduce the lesson by defining the concept probability distribution. We
therefore introduce you to the concept of probability distribution, binomial probability
distribution and normal probability distribution.

4.2 Lesson Learning Outcomes

By the end of this lesson, you will be able to:
4.2.1 Explain the concept of probability distribution
4.2.2 Evaluate binomial probability distribution
4.2.3 Evaluate normal probability distribution
4.2.1 CONCEPT OF PROBABILITY DISTRIBUTION
Definition of a probability distribution
It is a listing of all the outcomes of an experiment and the probability associated with each
outcome.
Example
The number of people (x) in a moving car licensed to carry up to 6 people follows the pattern
below
Number (X) Probability P(X)
1 0.5
2 0.3
3 0.1
4 0.05
5 0.03
6 0.02
Find the following probabilities
i. Exactly 3 people
ii. Up to 3 people
iii. Fewer than 3 people
iv. More than 3 people
v. At least 3 people
vi. Between 2 and 5 people

The mean, variance and standard deviation of a probability distribution

 The mean also referred to as the expected value is denoted by
= = where is the probability of the possible value of the
random variable .
 The variance

Example
John sells cars for General Motors. He usually sells the largest number of cars on Saturday.
He has the following probability distribution for the number of cars he expects to sell on a
particular Saturday.
No. of cars (x) Probability P(x)
0 .1
1 .2
2 .3
3 .3
4 .1
Total 1.0
i. On a typical Saturday, how many cars does John expect to sell?
 ii. What is the variance of the distribution?

E-tivity 4.2.1 – Probability distribution

Numbering, pacing and 4.2.1

sequencing
Title Probability distribution
Purpose The purpose of this e-tivity is to enable you to explain
Concept of Probability distribution
Brief summary of overall Watch video on this link and define the concept of
task Probability distribution

Spark

Individual task (a) Using bullet points, outline the key themes in the
Concept of Probability distribution
(b) Briefly highlight the decision areas in Concept of
Probability distribution
Do this in discussion forum 4.2.1
Interaction begins

a) Post two themes that are common in the Concept of

Probability distribution

b) After watching the video compute, the mean and the

variance from the example given

E-moderator interventions 1) Ensure that learners are focused on the contents and
context of discussion.
 2) Stimulate further learning and generation of new
ideas.

3) Provide feedback on the learning progress.

4) Close the e-tivity

Schedule and time This task should take one hour

Next
Binomial Probability distributions

4.2.2 BINOMIAL PROBABILITY DISTRIBUTION

It is the number of success in an experiment of n trials. It is a discrete distribution.
For a discrete random variable , is the number of successful outcomes in trials. If the
above conditions are satisfied, is said to follow a binomial distribution i.e. . If
, the probability of obtaining successes in trials is where

Examples
1. At Nakumatt Supermarket, 30% of the customers pay by credit card. Find the probability
that in a randomly selected sample of ten customers:
i. Exactly two pay by credit card
ii. Less than three pay by credit card
iii. More than three pay by credit card
iv. More than seven pay by credit card.

E-tivity 4.2.2 – Binomial probability distribution

Numbering, pacing and 4.2.2

sequencing
Title Binomial probability distribution
Purpose The purpose of this e-tivity is to enable you to explain
and evaluate Binomial probability distribution
Brief summary of overall Watch video1, video2 and video3 on this link and evaluate
task Binomial probability distribution
 Spark

Individual task (a) Using bullet points, outline the key themes in the
Binomial probability distribution
(b) Briefly highlight the decision areas in Binomial
probability distribution
Do this in discussion forum 4.2.2
Interaction begins

a) Post two themes that are common in the Binomial

probability distribution

b) After watching the video attempt the questions given

in the forum

E-moderator interventions 1) Ensure that learners are focused on the contents and
context of discussion.

2) Stimulate further learning and generation of new

ideas.

3) Provide feedback on the learning progress.

4) Close the e-tivity

Schedule and time This task should take one hour

Next
Normal Probability distributions

4.2.3 THE NORMAL PROBABILITY DISTRIBUTION

This are distributions where values of random variables are continuous in the sense that they
could take any value within a given range eg time, length, mass etc.

The standard normal probability distribution ( = 0,  = 1)

Z-Value: It is the distance between a selected value designated X and the mean  divided by
the standard deviation.
 Where X is the value of any particular observation
is the mean of the distribution
is the standard deviation of the distribution
Examples:
1. The daily incomes of middle managers are normally distributed with a mean of Sh. 1000
and a standard deviation of Sh. 100. Required: -
(a) What is the Z value for an income of Sh. 1,100 and 900?
(b) What is the area under the normal curve between 1,000 and 1,100?
(c) What is the probability that a particular daily income selected at random is between
790 and 1,000?
(d) What is the probability that the income is less than 790?
(e) What is the area under the normal curve between 840 and 1200?
(f) What percent of executives earn daily incomes of 1,245 and above?
(g) What is the area under the normal curve between 1,150 and 1,250?

E-tivity 4.2.3 – Normal probability distribution

Numbering, pacing and 4.2.3

sequencing
Title Normal probability distribution
Purpose The purpose of this e-tivity is to enable you to explain
and evaluate Normal probability distribution
Brief summary of overall Watch video on this link and evaluate Normal probability
task distribution

Spark

Individual task (a) Using bullet points, outline the key themes in the
Normal probability distribution
(b) Briefly highlight the decision areas in Normal
 probability distribution
Do this in discussion forum 4.2.3
Interaction begins

a) Post two themes that are common in the Normal

probability distribution

b) After watching the video attempt the questions given

in the forum

E-moderator interventions 1) Ensure that learners are focused on the contents and
context of discussion.

2) Stimulate further learning and generation of new

ideas.

3) Provide feedback on the learning progress.

4) Close the e-tivity

Schedule and time This task should take one hour

Next
Sampling theory and estimation theory

4.3 Assessment Questions

1. Highlight the characteristics of probability distribution
 The probability of a particular outcome is between 0 and 1, inclusive.
 The sum of the probabilities of all mutually exclusive outcomes is 1.0

2. State the difference between discrete random variable and continuous random variable
 Discrete random variables are variables that can assume only certain clearly separated
values of some item of interest while Continuous random variables can assume any value.
3. Highlight the conditions for binomial model
 An outcome on each trial of an experiment is classified into one of two mutually
exclusive categories; a success or a failure.
 The random variable counts the number of successes in a fixed number of trials.
 The probability of a success stays the same for each trial and so does the probability of a
failure.
 The trials are independent i.e. the outcome of one trial does not affect the outcome of
any other trial.
4. Highlight the characteristics of normal distribution
 It is bell shaped and has a single peak at the centre of the distribution
  The arithmetic mean, median and mode of the distribution are equal and located at the
peak.
 Half of the area under the curve is above this centre point and the other half is below
it.
 It is symmetrical about its mean i.e. if it is cut vertically at the central value, the two
halves will be mirror images etc

4.4 E-References
1. https://www.youtube.com/watch?v=VScv_QCYXnY
2. https://www.youtube.com/watch?v=d0ckAe3L9no
3. https://www.youtube.com/watch?v=6OO0vh7tu94

LESSON FIVE
SAMPLING THEORY AND ESTIMATION THEORY
5.1 Introduction

In this lesson, we lay the foundation for the entire lesson by defining the concept sampling
theory and estimation theory. Throughout our teaching experiences, we have found that an
understanding of the basic principles behind the subject and their applications increases the
students’ motivation for the subject. We therefore introduce you to the concept of sampling
theory and estimation theory.

5.2 Lesson Learning Outcomes

By the end of this lesson, you will be able to:
5.2.1 Explain the concept of sampling theory
5.2.2 Explain the concept of estimation theory

5.2.1 SAMPLING THEORY

Sampling: It’s the process of selecting a sample from a population. It is divided into;
 Probability sampling methods
 Non - Probability sampling methods
Probability Sampling Methods
Samples are selected in such a way that each item or person in the population has a known
(Nonzero) likelihood of being included in the sample. They include:
1. Simple Random Sampling:
2. Systematic Random Sampling:
3. Stratified Random Sampling:
4. Cluster Sampling:

Non - Probability Sampling Methods

It is used when a researcher is not interested in selecting a sample that is representative of the
population. They include:
1. Convenience or Accidental Sampling
2. Purposive Sampling
3. Quota Sampling
4. Snow ball sampling

E-tivity 5.2.1 – Sampling theory

Numbering, pacing and 5.2.1

sequencing
Title Sampling theory
Purpose The purpose of this e-tivity is to enable you to explain
Concept of Sampling theory
Brief summary of overall Watch video on this link and define the concept of
task Sampling theory

Spark

Individual task (a) Using bullet points, outline the key themes in the
Concept of Sampling theory
(b) Briefly highlight the decision areas in Concept of
 Sampling theory
Do this in discussion forum 5.2.1
Interaction begins

a) Post two themes that are common in the Concept of

Sampling theory

b) After watching the video discuss the various forms

of sampling methods

E-moderator interventions 1) Ensure that learners are focused on the contents and
context of discussion.

2) Stimulate further learning and generation of new

ideas.

3) Provide feedback on the learning progress.

4) Close the e-tivity

Schedule and time This task should take one hour

Next
Estimation theory

5.2.2 ESTIMATION THEORY

Sample information is used to shade some light on the population characteristics i.e. we infer
population properties based on findings on the sample. Statistical inference falls into two
main areas i.e. statistical estimation and hypothesis testing.
Statistical Estimation: The characteristics of the sample (sample statistic) are used to
estimate or approximate some unknown population characteristics.
Hypothesis testing: The population characteristics are known or assumed. The sample
characteristics are used to verify or ascertain this assumed or known population
characteristic.
The assignment of values to a population parameter is based on a sample is called
estimation. The values assigned to a population parameter based on the value of a sample
statistic is called an estimate of the population parameter. The sample statistic used to
estimate a population parameter is called an estimator.
Estimation can be undertaken in two forms namely:
 Point estimation
  Interval estimation

Point estimation: A single value is calculated from sample data to estimate the unknown
population parameter. The value of a sample statistic that is used to estimate a population
parameter is called a point estimate and the procedure is called point estimation. Thus, a
sample mean ( ) can be used as a point estimate of the population mean .
Interval estimation: a point estimate may be right or wrong. It does not indicate the degree
of error or uncertainty or precision in the estimate. In estimating business parameters an error
is an obvious expectation. Therefore, uncertainty should be accommodated in business
estimations. Interval estimation includes the degree of error or uncertainty in the estimate. In
interval estimation, an interval is constructed around a point estimate and it is stated that this
interval is likely to contain the corresponding population parameter. Each interval is
constructed with regard to a given confidence level and is called a confidence interval.

Confidence interval for the population mean is computed by

or Z depends on the level of confidence.

The standard error of the mean when: -
 population standard deviation known is given by

 based on the sample standard deviation is given by

Examples
1. A study involves selecting a random sample of 256 sales representatives under the age of
35. One item of interest is their annual income. The sample mean is Sh. 55,420 and the
sample standard deviation is 2050.
i. What is the point estimate?
ii. What is the 95% confidence interval for the population mean rounded to the nearest
Sh. 10?

Confidence interval for a population proportion

A point estimate for the population proportion is found by dividing the number of successes
in the sample by the number sampled.

The confidence interval for a sample proportion is

Where sample proportion

 Standard normal value for the degree of confidence selected

is the sample size

Examples
1. A market survey was conducted to estimate the proportion of homemakers who would
recognize the brand name of a cleanser based on the shape and colour of the container.
Of the 1400 homemakers, 420 were able to identify the brand name. Using the 99%
degree of confidence, calculate the confidence interval of the population proportion.
2. Suppose the Nation TV network is considering replacing one of its prime time dramas
with a new family oriented comedy. Before a final decision is made a random sample of
400 prime time viewers is conducted. After seeing a preview of the comedy, 250
indicated that they would watch it.
i. What is the point estimate of the proportion of viewers in the population who
will watch the new show?
ii. Develop a 95% confidence interval for the proportion of viewers who will
watch the new show.

Confidence interval of the difference between two population means ( )

Example
A manufacturing company operates two factories A and B. The company wishes to establish
the difference between the average daily production levels of the two factories. The following
data was obtained for this purpose:-
Factory
A 2600 182 38
B 1980 150 32
Estimate at : -
i. 90% Confidence level
ii. 95% Confidence level
Confidence interval of the difference between two population proportions

Example
In a public opinion survey, 60 out of a sample of 100 high-income voters and 40 out of a
sample of 75 low-income voters supported a decrease in sales tax. Estimate the differences in
proportions with: -
i. 90% Confidence level
ii. 95% Confidence level
E-tivity 5.2.2 – Estimation theory

Numbering, pacing and 5.2.2

sequencing
Title Estimation theory
Purpose The purpose of this e-tivity is to enable you to explain
Concept of Estimation theory
Brief summary of overall Watch video1 on this link and define the concept of
task Estimation theory

Spark

Individual task (a) Using bullet points, outline the key themes in the
Concept of Estimation theory
(b) Briefly highlight the decision areas in Concept of
Estimation theory
Do this in discussion forum 5.2.2
Interaction begins

a) Post two themes that are common in the Concept of

Estimation theory

b) After watching the video attempt the questions given

in the forum

E-moderator interventions 1) Ensure that learners are focused on the contents and
context of discussion.

2) Stimulate further learning and generation of new

 ideas.

3) Provide feedback on the learning progress.

4) Close the e-tivity

Schedule and time This task should take one hour

Next
Hypothesis testing

5.3 Assessment Questions

1. State the reasons for sampling
 Cost
 Time: Greater speed of data collection
 Destructive nature of certain tests
 Greater accuracy of results etc
3. State the difference between point estimation and interval estimation
 Point estimation: The value of a sample statistic that is used to estimate a population
parameter is called a point estimate and the procedure is called point estimation.
 Interval estimation: In interval estimation, an interval is constructed around a point
estimate and it is stated that this interval is likely to contain the corresponding
population parameter. Each interval is constructed with regard to a given confidence
level and is called a confidence interval.

4. Highlight the qualities of a good estimator

 Unbiased
 Consistency
 Should be efficient
 Should be sufficient

5.4 E-References
1. https://www.youtube.com/watch?v=XF1fI_6Arnk
2. https://www.youtube.com/watch?v=SaoGLNFNHPk

LESSON SIX
HYPOTHESIS TESTING
6.1 Introduction

In this lesson, we introduce the entire lesson by defining the concept hypothesis testing. We
therefore introduce you to the concept of hypothesis testing.
6.2 Lesson Learning Outcomes
By the end of this lesson, you will be able to:
6.2.1 Explain and evaluate hypothesis testing

6.2.1 HYPOTHESIS TESTING

Hypothesis testing: It’s a procedure based on sample evidence and probability theory to
determine whether the hypothesis is a reasonable statement.

Procedure for testing a hypothesis

1. State the null and alternate hypothesis
2. Select a level of significance.
3. Identify the test statistic
4. Formulate a decision rule and identify the rejection region
5. Compute the value of the test statistic
6. Make a conclusion.

State the null hypothesis (HO) and alternate hypothesis (HA)

 The null hypothesis is a statement about the value of a population parameter. It should
be stated as “There is no significant difference between ……………”. It should always
contain an equal sign.
 The alternate hypothesis is a statement that is accepted if sample data provide enough
evidence that the null hypothesis is false.

Select a level of significance

A level of significance is the probability of rejecting the null hypothesis when it is true. It is
designated by  and should be between 0 –1.

Types of errors that can be committed

i. Type I error: it is rejecting the null hypothesis, when it is true.
ii. Type II error: It is not rejecting the null hypothesis, when it is false.

Null hypothesis Do not reject HO Reject HO

HO is True Correct decision Type I error
HO is false Type II error Correct decision
Identify the test statistic
A test statistic is the statistic that will be used to test the hypothesis e.g.

Formulate a decision rule

A decision rule is a statement of the conditions under which the null hypothesis is rejected
and the conditions under which it is not rejected. The region or area of rejection defines the
location of all those values that are so large or so small that the probability of their
occurrence under a true null hypothesis is rather remote.

Compute the value of the test statistic and make a conclusion.

The value of the test statistic is determined from the sample information, and is used to
determine whether to reject the null hypothesis or not.

One-tailed and Two-tailed tests

 A test is one tailed when the alternate hypothesis states a direction e.g.
Ho: The mean income of women is equal to the mean income of men
HA: The mean income of women is greater than the mean income of men

 A test is two tailed if no direction is specified in the alternate hypothesis

Ho: There is no difference between the mean income of women and the mean
income of men
HA: There is a difference between the mean income of women and the mean
income of men

HYPOTHESIS TESTING OF MEAN WHEN THE POPULATION VARIANCE IS

KNOWN
When the population variance is known and the population is normally distributed, the test

statistic for testing hypothesis about is .

Estimating the population mean when the population variance is known

The confidence interval estimator of when is known is

Examples
1. A study by the Coca-Cola Company showed that the typical adult Kenyan consumes 18
gallons of Coca-Cola each year. According to the same survey, the standard deviation of
the number of gallons consumed is 3.0. A random sample of 64 college students showed
they consumed an average (mean) of 17 gallons of cola last year. At the 0.05 significance
 level, can we conclude that there is a significance difference between the mean
consumption rate of college students and adults?

HYPOTHESIS TESTING OF THE POPULATION PROPORTIONS

The null and alternate hypotheses of tests of proportions are set up in the same way as the

hypothesis of tests about mean and variance. The test statistic for is

Example:
In a certain population, the proportion of smokers was 20% before an antismoking campaign
was carried out. After the campaign, out of 40 people randomly selected, it was found that 6
were smokers. Has the campaign against smoking been effective? Test at 5% level of
significance.

Confidence interval estimator of is

E-tivity 6.2.1 – Hypothesis testing

Numbering, pacing and 6.2.1

sequencing
Title Hypothesis testing
Purpose The purpose of this e-tivity is to enable you to explain
Concept of Hypothesis testing
Brief summary of overall Watch video1, video2 and video3 on this link and define
task the concept of Hypothesis testing

Spark

Individual task (a) Using bullet points, outline the key themes in the
Concept of Hypothesis testing
(b) Briefly highlight the decision areas in Concept of
 Hypothesis testing
Do this in discussion forum 6.2.1
Interaction begins

a) Post two themes that are common in the Concept of

Estimation theory

b) After watching the video attempt the questions given

in the forum

E-moderator interventions 1) Ensure that learners are focused on the contents and
context of discussion.

2) Stimulate further learning and generation of new

ideas.

3) Provide feedback on the learning progress.

4) Close the e-tivity

Schedule and time This task should take one hour

Next
Regression and correlation analysis

6.3 Assessment Questions

1. State the procedure of hypothesis testing
 State the null and alternate hypothesis
 Select a level of significance.
 Identify the test statistic
 Formulate a decision rule and identify the rejection region
 Compute the value of the test statistic
 Make a conclusion.

6.4 E-References
1. https://www.youtube.com/watch?v=kx-pcQAPvoc
2. https://www.youtube.com/watch?v=5T2p0A43dZQ
3. https://www.youtube.com/watch?v=PUeVYsqCsGI
 LESSON SEVEN
REGRESSION AND CORRELATION ANALYSIS
7.1 Introduction

In this lesson, we introduce the lesson by defining the concept of regression analysis. We
therefore introduce you to the concept of regression and correlation analysis.

7.2 Lesson Learning Outcomes

By the end of this lesson, you will be able to:
7.2.1 Explain and evaluate regression analysis
7.2.2 Explain and evaluate correlation analysis

7.2.1 REGRESSION ANALYSIS

Regression involves developing a mathematical equation that analyses the relationship
between the variable to be forecast (dependent variable) and the variables that the statistician
believes are related to the forecast variable (independent variable).

The regression equation of Y on X

 It’s used to predict the values of Y from the given values of X.
 It is expressed as follows
 The values of and can be got using the following formula’s

Example
1. A Farmer wanted to find out the relationship between the amount of fertilizer used and the
yield of corn. He selected seven acres of his land on which he used different amounts of
fertilizer to grow corn. The following table gives the amount (in kg) of fertilizer used and
the yield (in Tonnes) of corn for each of the seven acres.
Fertilizer used 120 80 100 70 88 75 110
Yield of corn 138 112 129 96 119 104 134
 i. Find the least squares regression line by identifying the appropriate dependent and
independent variable.
ii. Interpret the meaning of the values of 0 and 1 calculated in part (i).
iii. Compute the coefficient of correlation and coefficient of determination and interpret
them.
iv. Predict the yield of corn per acre for 105 kg of fertilizer used.

E-tivity 7.2.1 – Regression analysis

Numbering, pacing and 7.2.1

sequencing
Title Regression analysis
Purpose The purpose of this e-tivity is to enable you to explain
and evaluate Regression analysis
Brief summary of overall Watch video on this link and evaluate Regression analysis
task

Spark

Individual task (a) Using bullet points, outline the key themes in
Regression analysis
(b) Briefly highlight the decision areas in Regression
analysis
Do this in discussion forum 7.2.1
Interaction begins

a) Post two themes that are common in Regression

analysis
 b) After watching the video attempt the questions given
in the forum

E-moderator interventions 1) Ensure that learners are focused on the contents and
context of discussion.

2) Stimulate further learning and generation of new

ideas.

3) Provide feedback on the learning progress.

4) Close the e-tivity

Schedule and time This task should take one hour

Next
Correlation analysis

7.2.2 CORRELATION ANALYSIS

Correlation analysis is a statistical tool used to describe the degree to which one variable is
correlated.

Types of Correlation
(a) Positive and negative correlation.
(b) Linear and Non-Linear correlation
(c) Simple, partial and multiple correlation

Methods of calculating simple correlation

1. Scatter diagram
2. Karl Pearson’s coefficient of correlation
3. Spearman’s rank correlation coefficient

Karl Pearson’s coefficient of correlation (Product moment coefficient of correlation)

The coefficient of correlation (r) is a measure of strength of the linear relationship between
two variables.

Coefficient of determination (r2)

It is the square of the correlation coefficient. It shows the proportion of the total variation in
the dependent variable Y that is explained or accounted for by the variation in the
independent variable X.

Spearman’s Rank Correlation

 It is the correlation between the ranks assigned to individuals by two different people.
It is denoted by R or p

Example
The ranks given by two judges to 10 individuals are given below.
Individual 1 2 3 4 5 6 7 8 9 10
Judge 1(X) 1 2 7 9 8 6 4 3 10 5
Judge 2 (Y) 7 5 8 10 9 4 1 6 3 2
Calculate
(a) The spearman’s rank correlation.
(b) The Coefficient of correlation

Example
An examination of eight applicants for a clerical post was taken by a firm. From the marks
obtained by the applicants in the accounting and statistics papers, compute the Rank
coefficient of correlation.
Applicant A B C D E F G H
Marks in accounting 15 20 28 12 40 60 20 80
Marks in statistics 40 30 50 30 20 10 30 60

E-tivity 7.2.2 – Correlation analysis

Numbering, pacing and 7.2.2

sequencing
Title Correlation analysis
Purpose The purpose of this e-tivity is to enable you to explain
and evaluate Correlation analysis
Brief summary of overall Watch video and video2 on this link and evaluate
task Correlation analysis
 Spark

Individual task (a) Using bullet points, outline the key themes in
Correlation analysis
(b) Briefly highlight the decision areas in Correlation
analysis
(c) Highlight the interpretation criteria for coefficient
correlation
Do this in discussion forum 7.2.2
Interaction begins

a) Post two themes that are common in Correlation

analysis

b) After watching the video attempt the questions given

in the forum

E-moderator interventions 1) Ensure that learners are focused on the contents and
context of discussion.

2) Stimulate further learning and generation of new

ideas.

3) Provide feedback on the learning progress.

4) Close the e-tivity

Schedule and time This task should take one hour

Next
Calculus

7.3 Assessment Questions

1. Describe regression analysis
 Regression involves developing a mathematical equation that analyses the
relationship between the variable to be forecast (dependent variable) and the variables
that the statistician believes are related to the forecast variable (independent variable).
 2. State the assumptions of the error term
 The error term is a real random variable which has a mean of zero and constant
variance
 The error term is normally distributed
 The error term corresponding to different values of X for different periods are not
correlated etc

3. State the types of correlation

 Positive and negative correlation.
 Linear and Non-Linear correlation
 Simple, partial and multiple correlation

7.4 E-References
1. https://www.youtube.com/watch?v=aG3859rGFdQ
2. https://www.youtube.com/watch?v=PvSh7jyFvNg
3. https://www.youtube.com/watch?v=NVW-IhhccqE

LESSON EIGHT

CALCULUS
8.1 Introduction

In this lesson, we introduce the lesson by defining the concept of calculus. We therefore
introduce you to the concept of differentiation and integration.

8.2 Lesson Learning Outcomes

By the end of this lesson, you will be able to:
8.2.1 Explain the concept and application of differentiation
8.2.2 Describe the concept and application of integration

8.2.1 DIFFERENTIATION
Differentiation is the process of finding the derivative of a function. The derivative
represents the instantaneous rate of change in the dependent variable given a change in the
independent variable.
Rules of differentiation
(a) Power Rule
If . This holds at all points except at
(b) Product Rule
If is a product of two functions i.e. where and are functions of , then

(c) Quotient Rule

If is a quotient of two functions i.e. where and are functions of , then

(d) Chain rule

Chain rule is used to differentiate compound functions. If where is a function of ,

then

Application of Differentiation to Revenue, Cost and Profit Functions

Revenue function
Total Revenue = (Price per unit) (Quantity sold) = P*Q

Total revenue would be maximized when and

Cost Function

Total cost would be minimized when and

Profit Function
Total profit would be maximized when and

E-tivity 8.2.1 – Differentiation

Numbering, pacing and 8.2.1

sequencing
Title Differentiation
Purpose The purpose of this e-tivity is to enable you to explain
and apply Differentiation
Brief summary of overall Watch video1 and video2 on this link and apply
task Differentiation

Spark

Individual task (a) Using bullet points, outline the key themes in
Differentiation
(b) Briefly highlight the decision areas in
Differentiation
(C) State the rules of maximizing revenue and
minimizing cost
Do this in discussion forum 8.2.1
Interaction begins

a) Post two themes that are common in Differentiation

b) After watching the video attempt the questions given

in the forum

E-moderator interventions 1) Ensure that learners are focused on the contents and
 context of discussion.

2) Stimulate further learning and generation of new

ideas.

3) Provide feedback on the learning progress.

4) Close the e-tivity

Schedule and time This task should take one hour

Next
Integral Calculus

8.2.2 INTEGRAL CALCULUS

Integration is the reverse of differentiation. Given the derivative of a function, the process of
finding the original function is the reverse of differentiation.

Power Rule:

Provided that

Power Rule Exception

Application of Integral Calculus

Integration can be used to determine the area between curves and also to solve business
problems.

Finding the area between a curve and the x-axis

For a function that is continuous over [a, b], the area between and the axis from

to can be found using definite integrals as follows; Area =

Finding the area between two curves

If and are continuous and over the interval [a, b], then the area bounded by
and for is given by

Area =
E-tivity 8.2.2 – Integral calculus

Numbering, pacing and 8.2.2

sequencing
Title Integral Calculus
Purpose The purpose of this e-tivity is to enable you to explain
and apply Integral Calculus
Brief summary of overall Watch Video1 on this link and apply Integral Calculus
task

Spark

Individual task (a) Using bullet points, outline the key themes in
Integral Calculus
(b) Briefly highlight the decision areas in Integral
Calculus
Do this in discussion forum 8.2.2
Interaction begins

a) Post two themes that are common in Integral

Calculus

b) After watching the video attempt the questions given

in the forum

E-moderator interventions 1) Ensure that learners are focused on the contents and
context of discussion.

2) Stimulate further learning and generation of new

 ideas.

3) Provide feedback on the learning progress.

4) Close the e-tivity

Schedule and time This task should take one hour

Next
Linear programming

8.3 Assessment Questions

1. Evaluate the rules of differentiation
 Power Rule
 Product Rule
 Quotient Rule
 Chain rule

2. Evaluate rules of integration

 Power Rule:
 Power Rule Exception

8.4 E-References
1. https://www.youtube.com/watch?v=nGhF1qPPlyU
2. https://www.youtube.com/watch?v=4PboEB2nriQ
3. https://www.youtube.com/watch?v=zhctwHcCMJM

LESSON NINE

LINEAR PROGRAMMING
9.1 Introduction

In this lesson, we introduce the lesson by defining the concept of linear programming. We
therefore introduce you to the concept of linear programming and solutions to Linear
Programming problems.

9.2 Lesson Learning Outcomes

By the end of this lesson, you will be able to:
9.2.1 Explain the concept linear programming
9.2.2 Solve Linear Programming problems
9.2.1 CONCEPT OF LINEAR PROGRAMMING
  It is a mathematical technique that deals with the optimization of a linear function of
variables known as objective function to a set of linear inequalities known as
constraints.

Basic parts of a linear programming problem

i. The objective function: it describes the primary purpose of the formulation i.e. to
maximize profit or to minimize cost.
ii. The constraint set: It is a system of equalities and / or inequalities describing the
conditions under which optimization is to be accomplished e.g. machine hours, man-
hours, materials etc.

E-tivity 8.2.2 – Concept of linear programming

Numbering, pacing and 9.2.1

sequencing
Title Concept of linear programming
Purpose The purpose of this e-tivity is to enable you to explain
Concept of linear programming
Brief summary of overall Watch video on this link and explain Concept of linear
task programming

Spark

Individual task (a) Using bullet points, outline the key themes in
Concept of linear programming
(b) Briefly highlight the decision areas in Concept of
linear programming
(c) Highlight the conditions for linear programming
Do this in discussion forum 9.2.1
 Interaction begins

a) Post two themes that are common in Concept of

linear programming

E-moderator interventions 1) Ensure that learners are focused on the contents and
context of discussion.

2) Stimulate further learning and generation of new

ideas.

3) Provide feedback on the learning progress.

4) Close the e-tivity

Schedule and time This task should take one hour

Next
Solutions to LP problems

9.2.2 MATHEMATICAL FORMULATION OF LINEAR PROGRAMMING

PROBLEMS
If there are n decision variables and m constraints in the problem, the mathematical
formulation of the LP is: -
Optimization (Max or Min)

Subject to the constraints

and
where

constant representing per unit contribution of the objective function of the

jth decision variable
constant representing exchange coefficient of the jth decision variable in the
ith constraint
constant representing ith constraint requirement or availability
Solutions to LP problems
LP problems can be solved by the help of the following methods:
i. Graphical method
ii. Simplex method

Examples
1. A firm is engaged in producing two products A and B. each unit of product A requires 2
kg of raw material and 4 labour hours for processing, whereas each unit of product B
requires 3 kg of raw material and 3 hours of labour, of the same type. Every week, the firm
has an availability of 60 kg of raw material and 96 labour hours. One unit of product A
sold yields Sh. 40 and one unit of product B sold gives Sh. 35 as profit. Formulate this
problem as a linear programming problem to determine as how many units of each of the
products should be produced per week so that the firm can earn the maximum profit.
Assume that there is no marketing constraint so that all that is produced can be sold.

E-tivity 9.2.2 – Solutions to LP problems

Numbering, pacing and 9.2.2

sequencing
Title Solutions to LP problems
Purpose The purpose of this e-tivity is to enable you to Solve
LP problems
Brief summary of overall Watch Video1and Video2 on this link and solve LP
task problems

Spark

Individual task (a) Using bullet points, outline the key themes in
Solutions to LP problems
(b) Briefly highlight the decision areas in Solutions to
LP problems
Do this in discussion forum 9.2.2
 Interaction begins

a) Post two themes that are common in Solutions to LP

problems

b) After watching the video attempt the questions given

in the forum

E-moderator interventions 1) Ensure that learners are focused on the contents and
context of discussion.

2) Stimulate further learning and generation of new

ideas.

3) Provide feedback on the learning progress.

4) Close the e-tivity

Schedule and time This task should take one hour

Next
End of Semester Examinations

9.3 Assessment Questions

1. State the requirements of linear programming
 There should be an objective which should be clearly identifiable and measurable in
quantitative terms e.g. maximization of profit or minimization of cost
 The activities to be included should be distinctly identifiable and measurable in
quantitative terms e.g. the products included in a production planning problem
 The resources of the system which are to be allocated for the attainment of the goal,
should also be identifiable and measurable quantitatively. They must be in limited
supply.

2. State the advantages of linear programming

 Helps in attaining the optimum use of productive factors
 Improves the quality of decisions
 Improves the knowledge and skill of tomorrow’s executives
 It highlights the bottlenecks in the production process

3. State the simplex process

 Standardize the problem into a linear programming tableau.
 Generate the initial solution, called a basis.
  Test the solution for optimality. If the solution is not optimal, improve it (go to step
4); otherwise go to step 6
 Identify one variable that will leave the basis and one variable that will enter the basis.
 Generate an improved solution. The improved solution is checked for optimality. If it
is not optimal, then steps 4 and 5 are repeated. If it is optimal, step 6 is undertaken.
 Find if more than one optimal solution exists.

9.4 E-References
1. https://www.youtube.com/watch?v=l4ANGQ9mPiQ
2. https://www.youtube.com/watch?v=ae-NO-02lhM
3. https://www.youtube.com/watch?v=S9w8yX14Lrg&t=618s