Lecture_07
Lecture_07
Normal Distribution
Normal Approximations
Exponential Distribution
Continuous Random Variables
Continuous Random Variable
A continuous variable is a variable that can take
on any value within an interval. For instance
• thickness of an item
• temperature in a room
• height
Continuous Random Variable
X~U(a,b)
Example
For instance, you arrive into a building and are about
to take an elevator to the your floor. Once you call the
elevator, it will take between 0 and 40 seconds to
arrive to you. We will assume that the elevator arrives
uniformly between 0 and 40 seconds after you press
the button.
Symmetrical
σ
Mean= Median = Mode
x
μ
Center is determined by the mean, μ
Mean
Spread is determined by the standard = Median
= Mode
deviation, σ
Changing σ
increases or
σ decreases the
spread.
μ X
By varying the parameters μ and σ, we
obtain different normal distributions
Normal CDF
For a normal random variable X with mean μ
and variance σ2 , i.e., X~N(μ, σ2), the CDF is
F(x0 ) P(X x 0 )
PDF CDF
CDF
x0 x0
Finding Normal Probabilities
The probability for a range of values is measured
by the area under the curve
P(a X b) F(b) F(a)
a μ b x
F(b) P(X b)
a μ b x
F(a) P(X a)
a μ b x
a μ b x
Example
Assume that the weight of boxes, X, is normally
distributed with a mean of 30 kg and a standard
deviation of 8 kg. Calculate the probability that a
randomly selected box weighs:
a) between 30 to 34.5 kg
b) less than 32 kg
X μ 200 100
Z 2 .0
σ 50
This says that X = 200 is two standard
deviations above the mean of 100.
Comparing X and Z units
0 2.0 Z (μ = 0, σ = 1)
Note that the distribution is the same, only the scale has
changed. We can express the problem in original units (X)
or in standardized units (Z).
Standardized Normal Table – C2
The Standardized Normal table shows values
of the cumulative normal distribution function
F(a) P(Z a)
0 a Z
Standardized Normal Table – C2
For a given Z-value a , the table shows F(a)
(the area under the curve from to a )
Example: .9772
F(2) = P(Z < 2.00) = .9772
0 2.00 Z
Example:
F(2) = NORM.S.DIST(2.00,1) = P(Z < 2.00) = .9772
Standardized Normal Table
For negative Z-values, use the fact that the
distribution is symmetric to find the needed
probability: .9772
= 0.0228
0 2.00 Z
.9772
.0228
In Excel:
F(-2) = NORM.S.DIST(-2.00,1)
-2.00 0 Z
= 0.0228
Basic Steps for Finding Probabilities
To find P(a < X < b) when X is distributed
normally:
a µ b x
a μ bμ
za 0 zb Z
σ σ
Example
Suppose X is normal with mean 8.0 and standard
deviation 5.0. Find P(X < 8.6)?
X μ 8.6 8.0
Z 0.12
σ 5.0
μ=8 μ=0
σ = 10 σ=1
Z
8 8.6 X 0 0.12
.11 .5438
.12 .5478
Z
0.00
.13 .5517
0.12
0.5478
1.000 1.0 - 0.5478
= 0.4522
Z Z
0 0
0.12 0.12
Example
Example. Analysis of 1000 long distance calls
indicates that the length of these calls is normally
distributed with expected value of 240 seconds and
standard deviation of 40 seconds.
X μ Zσ
Example. Suppose X is normal with mean 8.0
and standard deviation 5.0. Find the X value so
that only 20% of all values are below this X?
.2000
? 8.0 X
? 0 Z
Find the Z value for the known probability
Standardized Normal Probability 20% area in the lower
Table (Portion) tail is consistent with a
Z value of -0.84
z F(z)
.84 .7995
? 8.0 X
.85 .8023 -0.84 0 Z
Lowest percent
Example. Find the associated z-score for each
of the following standard normal areas:
• Highest 10 percent;
• Lowest 50 percent;
• Middle 50 percent.
Example. High school students across the nation
compete in a financial capability challenge each year
by taking a National Financial Capability Challenge
Exam. Students who score in the top 20 percent are
recognized publicly for their achievement by the
Department of the Treasury.
For instance