UNIVERSITY OF LIMPOPO

TURFLOOP CAMPUS

STUDY GUIDE

MODULE: CFNA002 2020

(FOUNDATION BASIC NUMERACY II)

COMPILED BY: MR T J SATEKGE

Open Rubric
Contents

I Module outline 4

II Topics 6
1 Number Patterns,Sequences and series 8
1.1 Number patterns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.2 Arithmetic sequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.2.1 Example 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.2.2 Example 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.2.3 Exercise 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.3 Geometric sequence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.3.1 Example 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.3.2 Example 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.3.3 Exercise 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.4 Arithmetic and geometric series . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.4.1 Arithmetic series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.4.2 Example 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.4.3 Exercise 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.5 Geometric series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.5.1 Example 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.5.2 Exercise 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.6 Arithmetic mean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.7 Sigma notation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.7.1 Example 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.7.2 Exercise 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.8 Infinite geometric series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.8.1 Example 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
1.8.2 Exercise 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

2 How quantities change 15

2.1 Simple and Compound interest . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.1.1 Simple interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.1.2 Compound interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

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2.1.3 Continuous Compounding of interest . . . . . . . . . . . . . . . . . . 18
2.2 Effective interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.3 Annuities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.3.1 Determining the size of annuity . . . . . . . . . . . . . . . . . . . . . 20
2.4 Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

3 Statistics and Probability 22

3.1 Measures of central tendency(mean,median,mode) . . . . . . . . . . . . . . . 22
3.1.1 The mean (average) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.1.2 Median . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.1.3 Mode . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.1.4 Exercises 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.2 Measures of spread (Range, variance and standard deviation) . . . . . . . . . 32
3.2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.2.2 Range . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.2.3 Variance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
3.2.4 Standard deviation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
3.3 Permutation and combination . . . . . . . . . . . . . . . . . . . . . . . . . . 35
3.3.1 Permutations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
3.3.2 Combination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

4 Probability distribution 44
4.1 Probabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
4.2 Conditional probability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
4.3 Binomial distribution, Poison distribution and Negative Binomial distribution 47
4.3.1 Binomial distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
4.3.2 Poison distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
4.3.3 Negative Binomial distribution . . . . . . . . . . . . . . . . . . . . . 50
4.3.4 Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

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 Part I

Module outline

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 CFNA002 STUDY GUIDE 2020
The module outline will be provided via the Blackboard platform, separately.

Page 5
Part II

Topics

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This guide covers the following topics

• Number patterns, Sequence and series

• How quantities change

• Statistics and Probability

• Probability distribution

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Chapter 1

Number Patterns,Sequences and series

1.1 Number patterns

A list of numbers in order is called a number pattern or number sequence. We need at least
three numbers in the list to work out if the numbers form a pattern. If we only have two
numbers, we cannot be sure what the pattern is.
For example, if we have the list 2; 4; · · · many different number patterns are possible:
The pattern could be 2; 4; 6; · · · add 2 to each number to get the next number
OR

2; 4; 8; · · · multiply each number by 2 to get the next number

OR

2; 4; 2; 4; · · · repeat the pattern

A single number is a sequence is called a term. Term 1 is written T1 , term 2 is written T2

and so on. The number of the term shows its position in the sequence.

T10 is the 10th term in the sequence.

Tn is the n − th term in the sequence.

1.2 Arithmetic sequences

Arithmetic sequence is a sequence where the common difference (d) between consecutive
terms is constant.
T2 − T1 = T3 − T2 = Tn − Tn−1 = d (common difference)

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1.2.1 Example 2
Given the sequence 5; 9; 13; 17; · · ·
a) Determine the common difference
b) Determine the next two terms
N.B If we use a for the first term T1 , d for the common difference, then the general term Tn
for an arithmetic is Tn = a + (n − 1)d

1.2.2 Example 3
Given the sequence 4; 10; 16; · · ·
a) Determine a formula for the nth term of the sequence.
b) Calculate the 50th term.
c) Which term of the sequence is equal to 310.

1.2.3 Exercise 1
1. Given the sequence 6; 13; 20; · · ·
a) Determine a formula for the nth term of the sequence.
b) Calculate the 21st term of this sequence.
c) Determine which term of this sequence is 97.
2. Consider this number pattern: 8; 5; 2; · · ·

a) Calculate the 15th term.

b) Determine which term of this sequence is −289.

3. a) Given the arithmetic sequence 1 − p; 2p − 3; p + 5; · · · determine the value of p.

b) Determine the values of the first three terms of the sequence.

1.3 Geometric sequence

When there is a common ratio r between consecutive terms, we can say this is a geometric
sequence.
If the first term (T1 ) is a, the common ratio is r, and the general term Tn , then

T2 T3 Tn
r= = = and
T1 T2 Tn−1
Tn = arn−1

Look at 5; 15; 45; 135; 405; · · ·

15
5
= 3, 45
15
= 3 and 135
45
= 3 and so the common ratio is 3.
Therefore the sequence is geometric. To get the next terms you multiply the preceding term
by the common ratio.

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1.3.1 Example 4
Given the sequence 1; 23 ; 94 ; · · ·
a) Determine the next two terms
b) Which term of the sequence is equal to 32
243

1.3.2 Example 5
In a geometric sequence, the fifth term is 80 and the common ratio is −2. De-
termine the first three terms of the sequence

1.3.3 Exercise 2
a) Determine the 10th term of the sequence: 3; 6; 12; · · ·
b) Determine the number of terms in the sequence: 2; 4; 8; · · · ; 1024
c) If 5; x; 45 are the first three terms of the geometric sequence, determine the value of x.
d) Determine the geometric sequence whose 8th term is 9 and whose 10th term is 25.

1.4 Arithmetic and geometric series

When we add the terms of a sequence together, we form a series.
We use the symbol Sn to show the sum of the first n terms of a series.
So Sn = T1 + T2 + T3 + T4 + · · · + Tn

1.4.1 Arithmetic series

The formula is Sn = n2 [2a + (n − 1)d] Where Sn is the some of n terms, a is the first term,
n is the number of terms and d is the common difference.
Proof
The general term of an arithmetic series is Tn = a + (n − 1)d
So Sn = T1 + T2 + T3 + T4 + · · · + Tn

Sn = a + (a + d) + (a + 2d) + · · · + [a + (n − 2)d] + [a + (n − 1)d]

(writing the first equation in reverse we get)
Sn = [a + (n − 1)d] + [a + (n − 2)d] + [a + (n − 2)d] + · · · + (a + d) + a
(adding the first and the second equation we get)
2Sn = [2a + (n − 1)d] + [2a + (n − 1)d] + [2a + (n − 1)d] + · · · + [2a + (n − 1)d] + [2a + (n − 1)d]
2Sn = n[2a + (n − 1)d]
n
Sn = [2a + (n − 1)d]
2

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1.4.2 Example 6
1. Determine the sum of the first 20 terms of the series: 3 + 7 + 11 + 15 + · · ·
2. The sum of the series 5 + 3 + 1 + · · · is 216, determine the number of terms in the series.

1.4.3 Exercise 3
1. Determine the sum of the series: 19 + 22 + 25 + · · · + 121
2. The sum of the series 22 + 28 + 34 + · · · is 1870. Determine the number of terms.
3.Given the arithmetic sequence −3; 1; 5; · · · ; 393
a) Determine a formula for the nth term of the sequence.
b) Write down the 4th , 5th , 6th and 7th terms of the sequence.
c) Write down the remainders when each of the first seven terms of the sequence is divided
by 3.
d) Calculate the sum of the terms in the arithmetic sequence that are divisible by 3.
4. The sum of n terms is given by Sn = n2 (1 + n). Determine T5 .
5. 3x + 2; 2x; 3x − 7 are the first three terms of an arithmetic sequence. Calculate the value
of x.
6. The first and second terms of an arithmetic sequence are 10 and 6 respectively.
a) Calculate the 11th term of the sequence.
b) The sum of the first n terms of this sequence is −560. Calculate n.

1.5 Geometric series

The formula is
a(rn − 1)
Sn = for r > 1
r−1
or

a(1 − rn )
Sn = for r < 1
1−r
Where a is the first term
r is the common ratio
n is the number of terms
Sn is the sum of the terms
Proof

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The general term of a geometric series is Tn = ar n−1
So

Sn = T1 + T2 + T3 + T4 + · · · + Tn
Sn = a + ar + ar2 + · · · + arn−2 + arn−1 Multiply each term by r
rSn = ar + ar2 + ar3 + · · · + arn−1 + arn
rSn − Sn = −a + 0 + 0 + · · · + 0 + 0 + arn
rSn − Sn = arn − a
Sn (r − 1) = a(rn − 1)
a(rn − 1)
Sn =
r−1
a(1−rn )
We can also use for Sn = 1−r
for r < 1

1.5.1 Example 7
Evaluate: 25 + 50 + 100 + · · · to 6 terms

1.5.2 Exercise 4
1. Determine 3 + 6 + 12 + 24 + · · · to ten terms
2. If 2 + 6 + 18 + · · · = 728, determine the value of n.

1.6 Arithmetic mean

A simple arithmetic mean between two numbers is the average of the two numbers e.g
1. Find the arithmetic mean between 7 and 19
2. Insert three arithmetic means between 8 and 16. 8, ..., ..., ..., 16

1.7 Sigma notation

Here is another useful way of representing a series.
The sum of a series can be written in sigma notation .
The
P symbol sigma is a Greek letter that stands for "the sum of".
Pis the symbol for ’sum of’
k=1 Tk means ’th4 sum of Tk terms from k = 1 to k = n’.
n

In other words
Pn
k=1 Tk = T1 + T2 + T3 + T4 + · · · + Tn

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1.7.1 Example 8
17
X
pk = p3 + p4 + p5 + · · · + p17
k=3
NB To determine the number of terms: top value minus bottom value plus 1 i.e the number
of terms in this case is (17 − 3) + 1 = 15

1.7.2 Exercise 5
1. Evaluate: 70
P
n=4 (2n − 4)
2. What is the value of m for which m k−1
P
k=1 5(3) = 65?
3. Consider the sequence: 2 ; 4; 4 ; 7; 8 ; 10; · · ·
1 1 1

a) If the pattern continues in the same way, write down the next TWO terms in the sequence.
b) Calculate the sum of the first 50 terms of the sequence.

1.8 Infinite geometric series

An infinite series is one in which there is no last term, i.e. the series goes on without ending.
e.g
6 + 3 + 23 + 34 + · · ·
∞
X
S∞ = 2(3)k−1 = 2 + 6 + 18 + 54 + · · · the sum from term1 to infinity of 2(3)k−1
k=1
T1 = 2(3)0 =2
T2 = 2(3)1 =6
T3 = 2(3)2 = 18
T4 = 2(3)3 = 54
The terms of this series are all positive numbers and the sum will get bigger and bigger
without any end. This is called a divergent series.
e.g
Look at this infinite series:
1 1 1 1
S∞ = 1 + + + + + ···
2 4 8 16
1 3
S2 = 1 + = = 1.5
2 2
3 1 7
S3 = + = = 1.75
2 4 4
7 1 15
S4 = + = = 1.675
4 8 8
15 1 31
S4 = + = = ···
8 16 16

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This series will converge to 2. It is therefore called a convergent series and we can write the
sum of infinity equals 2: S∞ = 2
You can identify a convergent infinite series by looking at the value r

An infinite series is convergent if −1 < r < 1, r 6= 0

The formula for the sum of a convergent infinite series is:

a
S∞ =
1−r
where a is the first term, r is the common ratio.

1.8.1 Example 9
1. Evaluate S∞ = 1 + 12 + 14 + 18 + 16
1
+ ···
2. For which values of x will 8x + 4x3 + 2x4 + · · · be convergent?
2

1.8.2 Exercise 6
1. Calculate S∞ if ∞ 1−p
P
p=1 8(4)
2. Given the series: 3(2x − 3)2 + 3(2x − 3)3 + 3(2x − 3)4 + · · · for which values of x will the
series converge?
3. Find the value of m if: m k−1
P
P∞3(2)
k=1 = 93
4. For which values of x will k=1 (4x − 1)k exist.

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Chapter 2

How quantities change

2.1 Simple and Compound interest

2.1.1 Simple interest
Interest is a fee which is paid for having the use of money. We pay interest on the mort-
gages for having the banks use of money. Simple interest a method of calculating the
interest charged on a loan. or Interest that is paid solely on the amount of the principal.
It is determined by multiplying daily interest rate by the principal(amount being borrowed)
per number of time in years.
i.e

I = P rt
Things we need to know in order to figure out interest or borrowed money.
Principal(P)- money borrowed or lent out for a certain period.
Interest(I)- extra money that the borrower pays.
Rate(r)- percentage of principal paid as interest.
Time(t)- duration of which the principal is borrowed.
Amount(A)- total money paid back at the end of the time period for which money was
borrowed. it is given by

A = P + I where (I = P rt)
= P (I + rt)

Examples
1. Robert takes a loan of R10000 from a bank for a period of one year. The rate of interest
is 10% per annum. Find the interest and the amount he has to pay at the end of a year.
2. How much interest is earned on a principal of R2500 invested at an interest rate of 5%
for 5years?
3. R4500 is deposited into a savings account, after 2years the amount increased to R5500.

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 CFNA002 STUDY GUIDE 2020
Calculate the simple interest rate for this account.
4. How long does it take a principal of R25000 at a simple interest rate of 5% to become
30000.

2.1.2 Compound interest

A common procedure for computing interest is by compounding interest. Under this proce-
dure, the interest is reinvested. The interest earned each period is added to the principal for
purpose of computing interest for the next period. The amount of interest computed using
this procedure is called compound interest. or the compound interest can be defined
as an addition of interest to the principal sum of a deposit or loan.

A simple example will illustrate this procedure. Assume that we have deposited $8000 in a
credit union which pays interest of 8% per year compounded quarterly. Assume that we
want to determine the amount of money we will have on deposit at the end of 1year if all
interest is left in the savings account. At the end of the first quarter, interest is computed
as

I1 = ($8000)(0.08)(0.25)
= $160

Note that t was defined as 0.25 year. with the interest left in the account, the principal
on which interest is earned in the second quarter is the original principal plus $160 interest
earned during the first quarter, or

P2 = P1 + I1 = $8160

Interest earned during the second quarter is

I2 = ($8160)(0.08)(0.25)
= $163.20

The table below summarizes the computations for the four quarters. Note that for each
quarter the accumulated principal plus interest is referred to as the compound amount.
Notice that total interest earned during the four quarters equals $659.45.

Two conclusions should soon become apparent. For a stated interest rate i:

1. compound interest is greater than simple interest. This is because interest which
has been earned subsequently earns itself.
2. The more frequently interest is compounded, the greater the interest earned.
That is, a bank deposit having interest compounded monthly will earn more interest than
an equal deposit having the same interest compounded quarterly.

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Quarter Principal(P) Interest(I) Compound Amount(S = P + I)
1 $8,000.00 $160.00 $8,000.00 + $160.00 = $8,160.00
2 $8,160.00 $163.00 $8,160.00 + $163.20 = $8,323.20
3 $8,323.20 $166.46 $8,323.20 + $166.46 = $8,489.66
4 $8,489.66 $169.79 $8,489.66 + $169.79 = $8,659.45

Table 2.1

In the last example, simple interest for the year would have been equal to

I = ($8000)(0.08)(1)
= $640

The difference between the simple interest and the compound interest $659.45 − $640.00 =
$19.45. Compound interest exceeds simple interest in this example by almost $20 over a one
year period.

What is the difference between simple and compound interest?

Simple interest is based on the principal amount of deposit, while the compound
interest is based on the principal amount and the interest that accumulates on
it in every period

The formula for compound interest is

r nt
A = P (1 + )
n
where A is the accumulated amount
P principal amount
r interest rate
t time in years
n number of times interest is compounded yearly. It can be monthly, quarterly, yearly, semi-
annually, etc
From the above equation, we can also compute P
A
P =
(1 + nr )nt

Example
1. Find the accumulated amount after 3years if R1000 is invested at 8% per year com-
pounded (a) Annually (b) Quarterly
2. Candice is planning a trip to new york. If she wants to have R3500 2years from now,

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how much should she invest if the interest is 7.3% compounded quarterly?
3. If you deposit $12, 500 in an account that pays 4.5% interest quarterly. What is the
balance after 8years? How much did the account earn in interest?
4. If you deposit R3500 into an account paying 4.3% annual interest compounded seasonally.
How long will it take you to have R8000 in your account?

2.1.3 Continuous Compounding of interest

What Is Continuous Compounding?
Continuous compounding is the mathematical limit that compound interest can reach if it’s
calculated and reinvested into an account’s balance over a theoretically infinite number of
periods. While this is not possible in practice, the concept of continuously compounded
interest is important in finance. It is an extreme case of compounding, as most interest is
compounded on a monthly, quarterly, or semiannual basis.

Continuous Compounding formula is given as

A = P ert

Example
1. If you deposit R4500 in an account paying 3.2% interest compounded continuously. How
much will the account hold after 36months?
2. If interest is compounded continuously on 4.5% for 7years. How much will a $2000
investment be worth at the end of 7 years?

2.2 Effective interest rate

Interest rates are typically stated as annual percentages. The stated annual rate is usually
referred to as the nominal rate. We have seen that when interest is compounded semiannu-
ally, quarterly, and monthly, the interest earned during a year is greater than if compounded
annually. When compounding is done more frequently than annually, the effective annual
interest rate can be determined. This is the interest rate compounded annually which
which is equivalent to a nominal rate compounded more frequently than annually. The two
rates would be considered equivalent if both result in the same compound amount.
The effective interest rate can be calculated using the following formula
r n
ref f = (1 + ) −1
n
where
ref f is the effective interest rate
r is the annual interest rate

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n number of compounding periods per year

In this example, the investment was made with a nominal interest rate of 12 percent per
annum compounded quarterly. For this investment r = 0.12 and n = 4. The effective interest
rate is
r
ref f = (1 + )n − 1
n
0.12 4
= (1 + ) −1
4
= (1 + 0.03)4 − 1
= 1, 12551 − 1
= 0.12551

The effective interest rate is 12.551%.

Example
1. Find the effective rate of interest, corresponding to the annual interest rate of 8% per
year, compounded
(a) Quarterly
(b) Daily
(c) Half-yearly
2. Find the effective rate for a loan of $500 at 10% compounded semi-annually.

2.3 Annuities
An annuity is a series of periodic payments. Example of annuities include regular deposits
to a savings account, monthly car, mortgage, or insurance payments, and periodic payments
to a person from retirement fund. Although an annuity may vary in dollar amount, we will
assume that an annuity involves a series of equal payments. we will also assume
that the payments are all made at the end of a compounding period. One may
certainly argue that the end of one period coincides with the beginning of the next period.
The important point is that the payment does not qualify for interest in the previous period
but will earn full interest during the next period.

A sum for annuity is given as

(1 + i)n − 1
 
Sn = R
i
where
R amount of an annuity
i interest rate per period

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n number of annuity payments(also the number of compounding periods)
Sn sum(future value) of the annuity after n periods(payments)
The expression in brackets is called the series compound-amount factor.

Example
A person plans to deposit $1000 in a tax-exempt savings plan at the end of this year and an
equal sum at the end of each following year. If interest is expected to be earned at the rate
of 6% per year compounded annually, to what sum will the investment grow at the time of
the fourth deposit?

Solution
Since i = 0.06 and n = 4 and R = $1000 then
(1 + i)n − 1
 
Sn = R
i
(1 + 0.06)4 − 1
 
S4 = $1000
0.06
= $1000(4.37462)
= $4374.62
NOTE An assumption in this section is that the interest is computed at the time of each
payment. An annual payments earn interest compounded annually, quarterly payments earn
interest compounded quarterly, and so forth. Differences between the timing of payments and
interest computation(e.g. annual deposits to an account which earns interest compounded
quarterly) can be handled by means other than those discussed in this chapter.

Example
A 12 year old wants to begin saving for college. She plans to deposit $50 in a savings account
at the end of each quarter for the next 6 years. Interest is earned at a rate of 8% per year
compounded quarterly. What should her account balance be 6 years from now? How much
interest will she earn?

2.3.1 Determining the size of annuity

As with the compound-amount formula, this can be solved for any of the four parameters,
given values for the other three. For example, we might have a goal of accumulating a
particular sum of money by some future time. If the rate of interest which can be earned
is known, the question becomes, What amount should be deposited each period in order to
reach the goal? To solve such a problem, It can be done by solving R or
 
i
R = Sn
(1 + i)n − 1

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where the expression in the brackets is the reciprocal of the series compound amount factor.
This factor is often called the sinking fund factor. This is because the series of deposits
used to accumulate some future sum of money is often called a sinking fund.

Examples
1. A corporation wants to establish a sinking fund beginning at the end of this year. Annual
deposits will be made at the end of this year and following 9 years. If deposits earn interest
at the rate of 8% per year compounded annually, how much money must be deposited each
year in order to have $12million at the time of the 10th deposit? How much interest will be
earned?
2. Assume in the above example that the corporation is going to make quarterly deposits
and that interest is earned at the rate of 8% per year compounded quarterly. How much
money should be deposited each quarter? How much less will the company have to deposit
over a 10year period as compared with annual deposits and annual compounding?

2.4 Inflation

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Chapter 3

Statistics and Probability

DEFINITIONS
The following definitions will be useful
An Observation refers to any recording of information.

A Population is a well-defined collection of observations with which we are concerned.

- data sets consisting of all outcomes, measurements or responses of interest.

A Sample is a subset of a population.

- data set which is subset of the population data set.

A Random sample of n observations is a sample that is chosen in such a that every subset
of n observations of the population has an equal chance of being chosen.

3.1 Measures of central tendency(mean,median,mode)

Data is organised into tables and summarise data with graphical displays. A picture(graph)
of the entire data set conveys how the data are spread out.
Another method of summarising data is to compute a number that describes the data set.
Observations of a random variable tend to group about some central value. The statistical
measures which quantify where the majority of the observations are concentrated, are re-
ferred to as the measures of central tendency.

A central tendency is a statistical representation of a typical value or middle data point of

a set of observations and are useful for comparing data sets.

There are 3 main measures of central tendency:

1) Mean(or average)- is the sum of the data set divided by the number of observation,
that is, their average.
2) Median - is the value which divides the distribution so that an equal number of values

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lie on either side of it.
3) Mode - is the value which occurs most frequently.

Each of these measures can be computed for ungrouped(raw data) and grouped data(data
summarised into a frequency distribution).

3.1.1 The mean (average)

Ungrouped data
The most commonly used measure of central tendency is the mean. The mean of a set of
values is obtained by finding the total of all given values and then dividing this total number
by the number of given values.

Mathematically it is represented as follows:

Pn
i=1 xi
x̄ =
n
Where
n = the number of observations in a sample
xi = the value of the ith observation of random variables x
P=
x̄ the symbol for a sample arithmetic mean
i=1 = shorthand notation for the sum of n individual observations.
n

Example 1
The following data set represents the scores obtained in a statistics test by 10 students:

94 61 47 72 60 54 31 81 70 50
Find the arithmetic mean score obtained in the test.
(94 + 61 + 47 + 72 + 60 + 54 + 31 + 81 + 70 + 50)
x̄ =
10
620
=
10
= 62
The average score obtained for the test is 62%

Grouped data
Grouped data are data that has been placed into a frequency distribution. The original data
is lost and only the frequencies within each class remain. All that is known is the frequency
with which observations appear in each of the m classes.

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The sum of all the observations cant be determined exactly and therefore is is not possible
to determine an exact arithmetic mean for the data set. The computed mean is only a close
approximation for the actual arithmetic mean.
Mathematically the mean for grouped data is represented as follows:
Pm
f i xi
x̄ = i=1
n
Where
m = the number of classes in the frequency distribution
n = the number of observations in a sample
xi = midpoint value for the ith class
fi = frequency for the ith class
P=
x̄ the symbol for a sample arithmetic mean
i=1 = shorthand notation for the sum of n individual observations.
n

Step 1
Find the midpoint of the random variable for each class:
The midpoint = lower class limit + half(class width)
or if you are working with an upper limit where the limit is set as <, then add the lower and
upper limits of intervals and divide by 2. In this way you get a middle value, between the
two limits.

Step 2
Multiply each midpoint by the respective frequency for that interval.

Step 3 Sum all the values determined in step 2.

Step 4
Divide this total by the number of observations in the sample.

Example 2
The rainfall in a region for 20 days are depicted in table 2.1 By using Table 3.1 and applying
the steps above we can now calculate the mean as depicted in Table 3.2 The average rainfall
is thus:
420
x̄ =
20
= 22

The average rainfall is 22mm.

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Rainfall(in mm) Number of days(fi )
0 to < 8 2
8 to < 16 6
16 to < 24 3
24 to < 32 5
32 to < 40 2
40 to < 48 2
n = 20

Table 3.1

Rainfall(in mm) Number of days(fi ) Midpoint(xi ) fi xi

0 to < 8 2 4 8
8 to < 16 6 12 72
16 to < 24 3 20 60
24 to < 32 5 28 140
32 to < 40 2 36 72
40 to < 48 2 44 88
n = 20 440

Table 3.2

3.1.2 Median
The median is that value that divides the data set into 2 equal parts. 50% of the observations
will be less than the median, and the other 50% will be more than the median.

Ungrouped data
For ungrouped data the median of data set is:
1) The data value exactly in the in the middle of the ordered list, if the number of observa-
tions is odd.
2) The mean of the two middle data values in the ordered list, if the number of observations
is even.

The following steps can be followed to find the median of ungrouped data

Step 1:

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Arrange the observations in ascending order.

Step 2:
1) When n=odd(number of observations is odd):
- The formula f racn + 12 can be used to identify the median position
- The value in this position is the median.

Example 3
The following data set is used (n = 11)

13 11 8 9 4 6 8 11 10 14 12
By arranging it in ascending order, we have the following:

4 6 8 8 9 10 11 11 12 13 14

The median position = (n+1)

2
= (11+1)
2
= 6. We now need to find the 6th value in our ordered
data set and that value will be our median. In the above data set 10 is the 6th value, therefore
10 is our median.
2) When n = even (number of observations is even):
- Identify the value in the n2 position.
- Find the mean of this value and the value directly to the right of it. This will be your
median.

Example 4
The following data set is used(n = 10)

13 11 8 9 4 6 8 10 14 12

by arranging it in ascending order, we have the following:

4 6 8 8 9 10 11 12 13 14

The median position = n2 = 10 2

= 5 we now need to find the mean for the 5th value and the
value directly to the right of it.

The 5th value is 9 and the value directly to the right of it is 10. The mean for these two
value are: 9+10
2
= 9.5. The median for the above is thus 9.5 .

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Grouped data
With a grouped data we are not able to determine where the true middle(median) falls, but
we can estimate the median by using a formula.

Step 1
Determine the median position by using the formula: n2 . The interval where this value falls,
will be your median interval
Step 2
Determine the median value by using the following formula:

c[ n2 − f (<)]
Me = Ome +
fme
where

Me = median
Ome = lower limit of the median interval
c = class width
f (<) = cumulative frequency of the interval before the median interval
fme = frequency of the median interval

The cumulative frequency is determined by asking the question: How many of the total
number of observations fall below the upper limit of each interval?

Example 5
Using the rainfall example from earlier, we can now determine the median. We need to add
the cumulative frequency to the frequency distribution. It is important to note that the last
f (<) value will be equal to your total number of observations.

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Rainfall(in mm) Number of days(fi ) f (<)
0 to < 8 2 2
8 to < 16 6 8
16 to < 24 3 11
24 to < 32 5 16
32 to < 40 2 18
40 to < 48 2 20
n = 20

Table 3.3

Step 1 is to determine the median position by using n2 . The median position= 20

2
= 10. By
using the f (<) column, we see the median(10 ) value falls in the interval 16to < 24. We
th

can now determine the median by substituting the relevant values in the formula.
where

Ome = 16
c=8
f (<) = 8
fme = 3

8[10 − 8]
Me = 16 +
3
Me = 21.33mm

Half of the rainfall will be less than 21.33mm and the other half will be more than 21.33mm.

Example 6
A survey regarding the weight of 45 students of class X of a school was conducted and
following data was obtained. Find the median weight.

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Weight in kg Number of students
20 − 25 2
25 − 30 5
30 − 35 8
35 − 40 10
40 − 45 7
45 − 50 10
50 − 55 3
n = 45

3.1.3 Mode
The mode is the value that occurs most frequently.

Ungrouped data
If the number of observations is not too large, the mode can be found by arranging the data
in ascending order and then identifying the value that occurs the most. The mode is usually
determined for grouped data, as it is easier to identify it from there.

Example 7
Find the mode for the following data set:

1 6 3 7 2 4 3

You first need to arrange the data in ascending order

1 2 3 3 4 6 7

The value that appears the most is 3 which appears twice, Thus the mode is 3.

Grouped data
Step 1:

Identify the modal interval. The modal interval is the interval with the highest frequency.

Step 2:

Determine the modal value by using the formula

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c(fm − fm−1 )
Mo = Omo +
2fm − fm−1 − fm+1
Where
Mo = mode
Omo = Lower limit of the modal class interval
c = class width
fm = frequency of the modal interval
fm−1 = frequency of the interval preceding the modal interval
fm+1 = frequency of the interval following the modal interval

Example 8
Using the rainfall example from earlier, we can now determine the mode .

Rainfall(in mm) Number of days(fi )

0 to < 8 2
8 to < 16 6
16 to < 24 3
24 to < 32 5
32 to < 40 2
40 to < 48 2
n = 20

The first step is to identify the interval with the highest frequency. The highest frequency
as indicated above is 6. Therefore our modal interval is 8 to < 16.

We now need to identify the different values to substitute in our formula.

Omo = 8
c=8
fm = 6
fm−1 = 2
fm+1 = 3

8(6 − 2)
Mo = 8 +
2(6) − 2 − 3
= 12.57mm
The rainfall that appears the most is 12.57mm.

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3.1.4 Exercises 1
1. Calculate the mean, mode and median for each of the following data sets:
Set1 :52 20 64 47 91 85 52
Set2 :95 95 89 46 63 45 27 50
Set3 :14 14 15 40 13 3 67 30 35
Set4 :55 79 14 75 18 52 88 23 91 37 44
2. The following indicates the distance travelled by 50 workers:

Distance(Km) Number of workers

0 to < 5 3
5 to < 10 8
10 to < 15 11
15 to < 20 20
20 to < 25 5
25 to < 30 3
n = 50

Determine the following:

a) Mean
b) Mode
c) Median

2. The following indicates the days 63 actors spend away from home:

Days away from home Number of actors

10 to < 15 2
15 to < 20 3
20 to < 25 3
25 to < 30 9
30 to < 35 12
35 to < 40 17
40 to < 45 17
n = 63

Determine the following:

a) Mean

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b) Mode
c) Median

3.2 Measures of spread (Range, variance and standard

deviation)
3.2.1 Introduction
A measure of spread (variability, dispersion, scatter) refers to how the data within the set is
"spread out" (or "dispersed", or "scattered") about the mean.

A measure of spread, sometimes also called a measure of dispersion, is used to describe the
variability in a sample or population. It is usually used in conjunction with a measure of
central tendency, such as the mean or median, to provide an overall description of a set of
data.
Why is it important to measure the spread of data?
There are many reasons why the measure of the spread of data values is important, but one
of the main reasons regards its relationship with measures of central tendency. A measure
of spread gives us an idea of how well the mean, for example, represents the data. If the
spread of values in the data set is large, the mean is not as representative of the data as if the
spread of data is small. This is because a large spread indicates that there are probably large
differences between individual scores. Additionally, in research, it is often seen as positive if
there is little variation in each data group as it indicates that the similar.
We will be looking at the range, variance and standard deviation.

3.2.2 Range
The range of a data set is the difference between the largest and smallest data values. It
is the simplest measure of variability.The range is based on only two values within the set,
which may tell very little about "how" the remaining values are distributed in the set. For
this reason, range is used as a supplement to other measures of spread, instead of being the
only measure of spread. So we calculate range as
Range = Maximum value − Minimum value

Example 9
Let us consider the following data set:
23 56 45 65 59 55 62 54 85 25
Arranging the data set in ascending order we get
23 25 45 54 55 56 59 62 65 85

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We can clearly see that the maximum value is 85 and the minimum value is 23. Therefore
the range is

Range = 85 − 23
= 62

This range of 62 tells us very little about how the data in this set is scattered. The range
alone cannot tell us, for example, if the data is clustered to one end of the set, or if there is
an outlier in the data set.

3.2.3 Variance
The variance is the average of the squared differences from the mean. A small variance
indicates that the data points tend to be very close to the mean and to each other A high
variance indicates that the data points are very spread out from the mean and from each
other. One problem with the variance is that it does not have the same unit of measure
as the original data. For example, original data containing lengths measured in feet has a
variance measured in square feet.

The variance is computed as follows

(xi − µ)2
P
Population = σ = 2

P N
(xi − x̄)2
Sample = S 2 =
n−1
What is the difference between population and sample?

A population is the entire group that you want to draw conclusions about.A sample is the
specific group that you will collect data from. The size of the sample is always less than the
total size of the population.

Example 10
You grow 7 crystals from a solution and measure the length of each crystal in millimeters.
Here is your data:
9, 2, 5, 4, 12, 7, 8
Calculate the sample variance of the length of the crystals.

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Solution
We first calculate the mean of the data
P
xi
x̄ =
n
9 + 2 + 5 + 6 + 12 + 7 + 8
=
7
49
=
7
=7
Subtract the mean from each data point (or the other way around, if you prefer... you will
be squaring this number, so it does not matter if it is positive or negative). We calculate the

Data set(xi ) (xi − x̄) (xi − x̄)2

9 9−7=2 22 = 4
2 2 − 7 = −5 (−5)2 = 25
5 5 − 7 = −2 (−2)2 = 4
6 6 − 7 = −1 (−1)2 = 1
12 12 − 7 = 5 (5)2 = 25
7 7−7=0 02 = 0
8 8−7=1 12 = 1

mean of the squared differences and because its a sample variance we subtract the number
of observations by 1.
4 + 25 + 4 + 1 + 25 + 0 + 1
S2 =
7−1
60
=
6
= 10
Therefore the sample variance is 10.

3.2.4 Standard deviation

The standard deviation of a data set is the positive square root of the variance. It is mea-
sured in the same units as the data, making it more easily interpreted than the variance.

The standard deviation is computed as follows

√
Population = σ2
√
Sample = S2

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For example refer to Example 10 above.

Exercises 2
1. Find the range of the following data. 63, 89, 98, 125, 79, 108, 117, 68

2. If the range and the smallest value of a set of data are 36.8 and 13.4 respectively, then
find the largest value.

3. A teacher asked the students to complete 60 pages of a record note book. Eight students
have completed only 32, 35, 37, 30, 33, 36, 35 and 37 pages. Find the standard deviation
of the pages yet to be completed by them.

4. Find the variance and standard deviation of the wages of 9 workers given below:

310, 290, 320, 280, 300, 290, 320, 310, 280

5. Find the sample standard deviation of the first 10 even numbers.

3.3 Permutation and combination

In this section will focus on various counting arrangements of the elements of a set to begin
this discussion, examine the following example

Example 11
suppose we are playing a game in which each play involves the roll of a die followed by the flip
of a coin. When the die is rolled, there are 6 possible outcomes (1, 2, 3, 4, 5or6). When the
coin is flipped, the 2 outcomes are heads(H) or tail(T). Let’s suppose that we are interested
in determining all possible outcomes for this game. One way of approaching this problem is
to construct a tree diagram.

The first outcome in this game is the result of rolling a die. The tree diagram represents
the 6 possible outcomes with six branches emanating from left to right. Given any one of
these outcomes, there are 2 possible outcomes in the second part of the game. These are
represented in the tree diagram by pairs of branches emanating from each of the six original
branches. What the tree diagram enumerates are the 12 possible combined outcomes for this
game.

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Exercise3
Construct the tree diagram which enumerates all possible outcomes in the pre-
vious game if the coin is flipped first, followed by the roll of the die. How many
combined outcomes are there?
Tree diagrams can be very effective in portraying and counting the possible outcomes of a
sequence of experiment or events. They do have limitations when the number of outcomes
increases. If we were to draw a tree diagram corresponding to the possible outcomes in
the drawing of a six-digit lottery number, imagine the the size and number of branches.
However we might indeed want to evaluate the number of possible outcomes to asses our
chance of winning such a lottery. Fortunately, there are more efficient ways of counting these
possibilities.
FUNDAMENTAL PRINCIPLE OF COUNTING
(Multiplication Principle)
I. If two experiments are performed in order, and there are n1 possible outcomes
for the first experiment and n2 possible outcomes for the second experiment,
then there are n1 ∗ n2 possible combined outcomes. An implicit assumption is
that the outcomes in the first experiment in no way influences the outcome of
the second experiment.
II. If N experiments are performed in order, with n1 , n2 , · · · , nN possible outcomes
for the N experiments, then there are n1 ∗ n2 ∗ · · · ∗ nN possible combined outcomes

Example 12
If we refer back to example 11, the first experiment was the roll of a die and it had six
possible outcomes (n1 = 6). The second experiment had two possible outcomes (n2 = 2).
Using the fundamental principle of counting, the number of possible combined outcomes for
the sequence of experiments is computed as

n1 ∗ n2 = (6) ∗ (2) = 12

Example 13
If we refer to the drawing of a six-digit lottery number, the drawing of each digit is an
experiment with 10 possible outcomes. The number of possible combined outcomes(or the
number of possible lottery numbers) is computed as

n1 ∗ n2 ∗ n3 ∗ n4 ∗ n5 ∗ n6 = 10 ∗ 10 ∗ 10 ∗ 10 ∗ 10 ∗ 10
= 1, 000, 000

Example 14
Surgical team The chief surgeon for an upcoming transplant operation is preparing to select
the supporting surgical team. Needed will be one assisting surgeon, one resident surgeon,

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one anesthesiologists, one surgical nurse, one assisting nurse, and one orderly. Given the
date of the surgery, the chief surgeon can select from three assisting surgeons, seven resident
surgeons, five anesthesiologist, six surgical nurses, ten assisting nurses, and five orderlies.
How many possible supporting surgical teams can be selected?

Solution
If we apply the fundamental principle of counting, the number of possible teams equals
3 ∗ 7 ∗ 5 ∗ 6 ∗ 10 ∗ 5 = 31, 500
Having discussed the fundamental principle of counting, we will now use this principle in
developing two other important counting methods.

3.3.1 Permutations
A permutation is an ordered arrangement of a set of items. Consider the three numerals
1, 2, and 3. One permutation of these numerals is 123. Another permutation is 132. All the
different permutations of these three numerals are
123 132 213 231 312 321
PERMUTATION COUNTING: RULE 1
The number of permutations of n different items taken n at a time is denoted by n Pn where

n Pn = n(n − 1)(n − 2) · · · 2 ∗ 1 (3.1)

The logic underlying equation (3.1) is that in selecting the first n items, there are n choices.
Once the first item is selected, there remain n − 1 choices for the second item, or n(n − 1)
possible choices for the first two items. Following selection of the second item there are n − 2
choices for the third item, or n(n − 1)(n − 2) possible choices for the first three items. This
logic concludes that having selected the first n − 1 items, there remains one choice for the
nth item. Equation (3.1) can be rewritten using Factorial notation as

n Pn = n! (3.2)
The notation n! (read "n factorial") is a shorthand way of representing the product on the
right side of equation (3.1). For example, "5 factorial" is expressed as
5! = 5 ∗ 4 ∗ 3 ∗ 2 ∗ 1
and
10! = 10 ∗ 9 ∗ 8 ∗ 7 ∗ 6 ∗ 5 ∗ 4 ∗ 3 ∗ 2 ∗ 1
then by definition 0! = 1
The number of different permutations of the three numerals 1, 2, and 3 taken three at a time
is 3 P3 = 3! = 3 ∗ 2 ∗ 1 = 6. Note that this equals the number of different permutations
enumerated previously.

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Example 15
Six football teams compete in a particular conference. Assuming no ties, how many different
end-of-season rankings are possible in the conference?

Solution
The number of different rankings is
6 P6 = 6!
=6∗5∗4∗3∗2∗1
= 720
PERMUTATION COUNTING: RULE 2
The number of permutations of n different objects taken r at a time is denoted by n Pr where
n Pr = n(n − 1)(n − 2) · · · (n − r + 1) (3.3)
The logic underlying equation (3.3) is similar to that of equation (3.1). However once r − 1
items have been selected, the number of different choices for the rth item equals n − (r − 1),
or n − r + 1.
An alternative statement on equation (3.3) is obtaining by multiplying the right side of
equation (3.3) by (n−r)!
(n−r)!
. Thus
(n − 1)!
n Pr = n(n − 1)(n − 2) · · · (n − r + 1) ∗
(n − 1)!
= n(n − 1)(n − 2) · · · (n − r + 1)(n − r)(n − r − 1) · · · 1
or
n!
n Pr = (3.4)
(n − r)!

Example 16
A person wishes to place a bet which selects the first three horses to finish a race in their
correct order of finish. If eight horses are in the race, how many different possibilities exist
for the first horses (assuming no ties)?

Solution
The number of possibilities is
8!
8 P3 =
(8 − 3)!
8∗7∗6∗5∗4∗3∗2∗1
=
5∗4∗3∗2∗1
=8∗7∗6
= 336

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The logic underlying this computation is that there are eight possibilities for the first place.
Given these eight, there remain seven possibilities for second place and given the selection
of first and second places, there are six choices for third place.

Example 17
A presidential candidate would like to visit seven cities prior to the next primary election
date. However, it will be possible for him to visit only three of the cities. How many different
itineraries can he and his staff consider?

Solution
Because "order of visits" is important in planning an itinerary, the number of possible
itineraries is equal to a number of permutations of seven cities taken three at a time, or
7!
7 P3 =
(7 − 3)!
7∗6∗5∗4∗3∗2∗1
=
4∗3∗2∗1
=7∗6∗5
= 210

3.3.2 Combination
With permutations we are concerned with the number of different ways in which a set of
items can be arranged. In many situations there is an interest in the number of ways in which
a set of items can be selected without any particular concern for the order or arrangement
of the items. For example, one may be interested in determining the number of different
committees of three people which can be formed from six candidate. In this instance, the
committee consist of A,B,C is the same committee as B,A,C, where A,B and C represent
three of the candidates. Order of selection is not significant in determining the number of
different committees.
A combination is a set of items with no consideration given to the order or arrangement of
the items. A combination of r items selected from a set of n items is a subset of the set of
n items. Consider the set of four letters A,B,C,D. Suppose we are interested in determining
the number of combinations of these four letters when taken three at a time. Lets begin by
enumerating all possible permutations of these four when taken three at a time. Table (3.4)
displays these permutations. According to equation (3.4) there should be, and are, in table

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ABC ACB BCA CAB CAB CBA
ABD ADB BAD BDA DAB DBA
ACD ADC CAD CDA DAC DCA

Table 3.4

(3.4)

4!
4 P3 =
(4 − 3)!
4∗3∗2∗1
=
1
= 24

different permutations. Notice that each row in table (3.4) represents the different permuta-
tions of three of the four letters; that is, given three different letters there are 3! = 3∗2∗1 = 6
different arrangements of the three letters. Since a combination of the three letters does not
consider order, each row actually represents only one combination. Thus there are only
four different combinations of the four letters when taken three at a time. In general the
relationship between permutations and combinations is

n Pr =n Cr ∗ r!

when solving for n Cr ,

n Pr
n Cr =
r!

Substituting equation (3.4) we get

n!
(n−r)!
n Cr =
r!
n!
n Cr =
r!(n − r)!

COMBINATIONS COUNTING RULE

The number of different combinations of r items which can be selected from n different items
is denoted by n Cr where
n!
n Cr =
r!(n − r)!
To return to the committee example, the number of different combinations of six people

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taken three at a time equals
6!
6 C3 =
3!(6 − 3)!
6∗5∗4∗3∗2∗1
=
3∗2∗1∗3∗2∗1
= 20

Example 18
Super bowl organizers are selecting game officials. From 12 officials who are eligible, 5 will
be selected. How many different teams of 5 officials can be selected from the 12?

Solution
The number of different teams of official is
12!
1 2C5 =
5!(12 − 5)!
12 ∗ 11 ∗ 10 ∗ 9 ∗ 8 ∗ 7!
=
5 ∗ 4 ∗ 3 ∗ 2 ∗ 1 ∗ 7!
= 729

Example 19
If we refer to the presidential candidate in example (17), how many combinations of three
cities might he and his staff consider visiting?

Solution
In this problem, order of visits is not relevant. We are interested in determining the number
of different sets of three cities which might be considered. This is a combinations problem
where
7!
7 C3 = = 35
3!(7 − 3)!

Some counting problems require combinations of counting methods, as illustrated by the

following example.

Example 20
Nutrition planning Nutritionist recommend that each adult consume, on a daily basis, a
minimum (a) four servings from the milk group of foods, (b) two servings from the meat
group, (c) four servings from vegetable and fruit group, and (d) four servings from the bread

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and cereal group. Suppose that a chef has six items from the milk group, five items from
meat group, seven items from the vegetable and fruit group, and eight items from bread and
cereal group. If the chef is to provide no more than one serving of any given item during the
day, how many different groupings of food could be considered for a given day’s menu?

Solution
This problem requires the use of the combinations counting rule and the fundamental princi-
ple of counting. To find the solution, we first determine the number of combinations of each
food group that can be provided on any given day. For example, the number of different
combination of milk group is
6!
6 C4 = = 15
4!(6 − 4)!
Similarly, the numbers of different combinations for the other three food items are, respec-
tively,
5!
meat 5 C2 = = 10
2!(5 − 2)!
7!
vegetable and fruit 7 C4 = = 35
4!(7 − 4)!
8!
bread and cereal 8 C4 = = 70
4!(8 − 4)!

Given the number of different options which can be selected from each food group, we can
use the fundamental principle of counting to determine the total number of different food
groups

Total possible food groupings =6 C4 ∗5 C2 ∗7 C4 ∗8 C4

= (15)(10)(35)(70)
= 367, 500

Exercise
1. A game consist of flipping a coin twice. Draw a tree diagram which identifies all
possible combined outcomes for the game.

2. A licence plate consist of two letters followed three single-digit numbers. Determine
the number of different licence plate codes which are possible.

3. The chairperson of a high school mathematics department wants to select four seniors,
three juniors, two sophomores, and two freshmen for the high school mathematics
team. Ten seniors, eight juniors, eight sophomores, and six freshman have applied
for the team and have qualified on the basis of their mathematics grades. How many
different teams could the chairperson select from this group?

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4. A political candidate wishes to visit six different states. In how many different orders
can she visit these states?

5. Evaluate the following factorial expression 5!

0!∗5!

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Chapter 4

Probability distribution

4.1 Probabilities
Probability is a numerical measure of the chances that an event will occur. Although we can
guess about the outcome of a random experiment, we cannot know for certain what outcome
will occur. We can guess head or tail for the flip of a coin, but we cannot know for sure. With
many random processes, however, there is long-run regularity. The long-run expectations in
flipping a coin is that approximately half of the outcomes will be heads and half tails. In the
roll of a die, the long-run expectation is that each side of the die will occur approximately
one-sixth of the time. These values reflect the expectation of the relative frequency of an
event.

Rule 1
The probability of an event A, denoted by P (A), is a number between 0 and 1
inclusive, written
0 ≤ P (A) ≤ 1

where
-If P (A) = 0, the event will not occur
-If P (A) = 1, even E is certain to occur

Example 21
The table below indicates some characteristics of the first year class at a junior college.

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Gender& major Business(B) Liberal arts(L) Engineering Total
Male(M) 350 300 100 750
Female(F) 250 450 50 750
Total 600 750 150 1500

Assume that a student will be selected at random from the freshman class and that each per-
son has an equal chance of being selected. Using the relative frequency concept of probability,
we can estimate the likelihood that the selected student will have certain characteristics. For
example, the probability that the selected student will be a male is

number of males
P (M ) =
total number of first year students
750
= = 0.5
1500
The probability that the student will be an engineering student is
number of engineering students
P (E) =
total number of first year students
150
= = 0.1
1500
The probability that the student will be a female majoring in business is
250
P (F B) = = 1.167
1500

Some additional rules of probability

Rule 2
If P (A) represents the probability that an even A will occur, the probability that
A will not occur, denoted by P (¯(A)), is

P (Ā) = 1 − P (A)

If the probability that a business will earn a profit during its first year of operation is
estimated at 0.85, the probability that it will not earn a profit during the first year is
1 − 0.85 = 0.15. Given a "fair" die, the probability that of rolling a one equals 16 . The
probability of not rolling a one equals 1 − 61 = 0.833

Probabilities and its rule

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• P (A ∪ B) = P (A) + P (B) − P (A ∩ B)
• P (A ∩ B̄) = P (A) − P (A ∩ B)
• P (Ā ∩ B) = P (B) − P (A ∩ B)
Note that the intersection operator is used to denote the joint or simultaneous occurrence of
two events.

Example 22
In an experiment consisting of selecting one card at random from a deck of 52 cards, the
events "king" and "spade" are not mutually exclusive. The probability of selecting a king, a
spade or both a king and a spade is determined by applying the first rule in the first bullet
above
P (king ∪ spade) = P (king) + P (spade) − P (king ∩ spade)
= P (king) + P (spade) − P (kingof spade)
4 13 1
= + −
52 52 52
16 4
= =
52 13

Example 23
180 students took examination in Mathematics and Economics. Their results are as follows:
80 students passed mathematics. 120 students passed Economics. 140 students passed both
subjects. Find the probability that a randomly selected student passed at least one subject.

4.2 Conditional probability

Let A and B be two events in a sample space S. Then the conditional probability is defined
as event A given that B has occurred. The probability of a head on the third toss of a coin,
given that the first two tosses both resulted in a head, is a conditional probability.
Conditional probabilities under conditions of statistical dependence can be computed using
the following rule.

Rule 3
The conditional probability of event A given the occurrence of event B is
P (A ∩ B) P (A ∩ B)
P (A|B) = similarly P (B|A) =
P (B) P (A)
The conditional probability is found by dividing the joint probability of events A and B by
the marginal probability B.

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Example 24
Suppose A and B are two events in a sample space S and that P (A) = 0.8, P (B̄) = 0.2,
P (A ∪ B) = 0.9. Calculate P (A ∩ B) and P (B|A).

Solution

P (A ∩ B) = P (A) + P (B) − P (A ∪ B)
= 0.8 + 0.8 − 0.9
= 0.7
P (A ∩ B)
P (B|A) =
P (A)
0.7
= = 0.88
0.8

Example 25
Suppose that a person selects a card at random from a deck of 52 cards and tells us that the
selected card is red. Determine the probability that the card is the king of hearts given that
it is red.
If both sides of the conditional probability are multiplied by the denominator, the resulting
equation provides an expression for the joint probability given as
P (A ∪ B) = P (B)P (A|B)

Example 26
The joint probability of selecting two aces in a row from a deck without replacement of the
first card can be solved using the above equation as
P (A1 ∪ A2 ) = P (ace on first draw) ∗ P (ace on second draw given an ace on first draw)
= P (A1 )P (A2 |A1 )
4 3
= ∗
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12
=
2652

4.3 Binomial distribution, Poison distribution and Neg-

ative Binomial distribution
4.3.1 Binomial distribution
Binomial distribution is a common probability distribution used in statistics. It summarizes
the likelihood that a value will take one of two independent values under a given set of

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parameter.
It represents the probability of x successes in n trials, given a success probability p (p denotes
success) for each trial p remains constant. where q = 1 − p which represent failure.
It is used when there are only two possible outcomes for a random for a random variable,
success(p), failure(1 − p) and n (total number of items)

The formula for Binomial distribution is given as

P (X = x) =n Cr ∗ px ∗ q n−x
NB

• At least P (X ≥ x) = 1 − P (X < x)
• At most P (X ≤ x)
• More than 1 P (X > 1) = 1 − P (X ≤ 1)

Example 27
1. Suppose we have n = 6 clients, with probability 0.2 of purchasing the product. What
is the probability that (a) exactly 2 purchased the product? (b) More than 1 client?
2. A certain type of pill is packed in bottles of 8 pills each. 10% of the pills are currently
being manufactured. What is the probability of manufacturing?
2.1. no pills?
2.2. At least two pills?

Mean and standard deviation of the Binomial distribution

Mean of a binomial distribution
The mean value µ for a binomial distribution is determined by the equation
µ = np
Equation above indicates that the mean number of success in a bernoulli process is equal to
the product of the number of trials and the probability of success for each individual trial.
If a binomial distribution describes the number of heads occurring in 500 flips of a coin, the
mean for this experiment is
µ = np
µ = 500(0.5)
= 250
which suggest that on the average we would expect to get 250 heads in 500 flips of a fair
coin.

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Example 28
In a situation where a student is taking a true or false quiz involving five questions. The
probability of answering any question correctly is estimated at 0.8. For this Bernoulli process,
the mean number of correct answer is

µ = 5(0.8)
=4

This results suggest that if this student took many five-question quizzes with the same prob-
ability of success, the average number of correct answers for the quizzes will be equal to 4.

Standard deviation of a binomial distribution

The standard deviation of a binomial probability distribution is determined by the equation
√
σ = npq

Example 29
A manufacturer of polygraphs claims that its machines can correctly distinguish truthful
responses to questions from untruthful responses 85% of the time. If the machine is tested
using a set of 50 questions, determine (a) the mean of the bernoulli process and (b) the
standard deviation.

Solution
For this process, p = 0.85 and n = 50
(a) The mean number of responses correctly identified is

µ = 50(0.85) = 42.50

(b) The standard deviation is

p
σ= (50)(0.85)(0.15)
√
= 6.375
= 2.52

4.3.2 Poison distribution

It is popular for modelling the number of times an event occur in an interval of time. It has
only one parameter λ(lambda) which is the average rate at which events are occurring per
time period. And it is always constant.
The probability of observing x events in an interval is given by the formula(Poisson formula)
e−λ ∗ λx
P (X = x) =
x!

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Examples on Poisson distribution
(a). We have a large fleet of delivery trucks. On average we have 2.4 breakdowns per working
day.What is the probability that on any given day,
(i) No stand by trucks were needed?

e−λ ∗ λx
P (X = x) =
x!
e−2.4 ∗ (2.4)0
=
0!
= 0.0907

(ii) At most 2 trucks were needed that day?

P (X ≤ 2) = P (X = 0) + P (X = 1) + P (X = 2)
e−2.4 ∗ (2.4)0 e−2.4 ∗ (2.4)1 e−2.4 ∗ (2.4)2
= + +
0! 1! 2!
= 0.0907 + 0.2177 + 0.2613
= 0.5697

(b). What is the probability of finding at least 2 errors in a book, if the printers have an
average error rate of 1.75 errors per? λ = 1.75

(c).Beer cans are randomly tossed alongside the road,with an average frequently of 3.2 per
km.
(i) what is the probability of seeing no beer can along the road?

(ii)What is the probability of seeing 1 or more cans?

Exercise
Bank tellers make errors in entering figures at the rate of 0.60 per page of entries. What is
the probability that in a random sample of 5 pages, there will be more than 2 errors?

4.3.3 Negative Binomial distribution

Refers to the probability that a negative binomial experiment results in r successes after
trial x. It has got two parameters r, p (r number of successes and p probability of successes,
p is always constant from trial to trial).

The negative binomial distribution formula is given by

P (X = x) = (x + r − 1)Cx ∗ pr ∗ q x x = 0, 1, 2, 3, · · ·

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where x is the number of trials
r is number of successes
p is the probability of success
q = 1 − p is the probability of failure
The mean and variance of the negative binomial distribution are given as

r(1 − p)
mean E(X) =
p

r(1 − p)
Variance(X) =
p2

Examples on Negative Binomial distribution

(a).Bob is a high school basketball player. He is a 70% free throw shooter. That means his
probability of making a free throw is 0.70.During the season,
(i) What is the probability that Bob makes his third free throw on his fifth shot?

P (X = x) = (x + r − 1)Cx ∗ pr ∗ q x
= P (X = 5) = (5 + 3 − 1)C5 ∗ (0.7)3 ∗ (0.3)5
= 0.0175

(ii) What is the probability that he makes his third free throw at most on his second shot?

(b). An oil company conducts a geological study that indicates that an exploratory oil well
should have 20% choice of striking oil. What is the probability that,
i. the third strike comes on the seventh well drilled?
ii. the third strike comes atleast on the second well drilled?

4.3.4 Exercise
A specific location has a 10% chance of rain on any given day. What is the probability that
it will take 3 days for it to rain,
(a) On 2 consecutive days?
(b) On more than one day?

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