Chapter 5

Discrete Probability
Distributions
 Definitions
 A random variable ⇒ a numerical description of
the outcome of an experiment, such as one-year
return percent for investment return

 Discrete variables ⇒ produce outcomes that come

from a counting process (e.g. number of classes
you are taking).

 Continuous variables ⇒ produce outcomes that

come from a measurement (e.g. your annual
salary, or your weight).
 Probability Distribution For A Discrete
Variable
 A probability distribution for a discrete variable
describes how probabilities are distributed over the values
of the random variable. i.e setting or listing of all possible
numerical outcomes for that variable and a probability of
occurrence associated with each outcome.

Interruptions Per Day In Probability

Mobile Network
0 0.35
1 0.25
2 0.20
3 0.10
4 0.05
5 0.05
Discrete Variables Expected Value (Measuring
Center & Dispersion)
 Expected Value (or mean) of a discrete
variable (Weighted Average)
N
  E(X)   xi P ( X  xi )
i 1
 Variance of a discrete variable
N
σ 2   [x i  E(X)]2 P(X  x i )
i 1

Standard Deviation of a discrete variable

N
σ  σ2   i
[x
i 1
 E(X)]2
P(X  x i )
Example 1
Interruptions Per Day Probability
In Computer Network P(X = xi) xiP(X = xi)
(xi)
0 0.35 (0)(0.35) = 0.00
1 0.25 (1)(0.25) = 0.25
2 0.20 (2)(0.20) = 0.40
3 0.10 (3)(0.10) = 0.30
4 0.05 (4)(0.05) = 0.20
5 0.05 (5)(0.05) = 0.25
1.00 μ = E(X) = 1.40
Interruptions Per
Day In Computer Probability
Network (xi) P(X = xi) [xi – E(X)]2 [xi – E(X)]2P(X = xi)
0 0.35 (0 – 1.4)2 = 1.96 (1.96)(0.35) = 0.686
1 0.25 (1 – 1.4)2 = 0.16 (0.16)(0.25) = 0.040
2 0.20 (2 – 1.4)2 = 0.36 (0.36)(0.20) = 0.072
3 0.10 (3 – 1.4)2 = 2.56 (2.56)(0.10) = 0.256
4 0.05 (4 – 1.4)2 = 6.76 (6.76)(0.05) = 0.338
5 0.05 (5 – 1.4)2 = 12.96 (12.96)(0.05) = 0.648
σ2 = 2.04, σ = 1.4283
 Covariance

 The covariance measures the strength of the

linear relationship between two discrete
variables X and Y.

 A positive covariance indicates a positive

relationship.

 A negative covariance indicates a negative

relationship.
 The Covariance Formula

 The covariance formula:

N
σ XY   [ xi  E ( X )][( yi  E (Y )] P ( X  xi , Y  yi )
i 1

where: X = discrete variable X

xi = the ith outcome of X
Y = discrete variable Y
yi = the ith outcome of Y
P(X=xi,Y=yi) = probability of occurrence of the
ith outcome of X and the ith outcome of Y
Example 2
Consider the return per $1000 for two types of investments.

Investment
Economic Condition
Prob. Stock X Stock Y

0.2 Recession - $25 - $200

0.5 Stable Economy + $50 + $60

0.3 Expanding Economy + $100 + $350

(i) Find the expected return, standard deviation and covariance

for stock X and stock Y
(ii) Which of the two stocks is a better investment?
Investment Returns
The Mean

E(X) = μX = (-25)(.2) +(50)(.5) + (100)(.3) = 50

E(Y) = μY = (-200)(.2) +(60)(.5) + (350)(.3) = 95

Interpretation: Fund X is averaging a $50.00 return

and fund Y is averaging a $95.00 return per $1000
invested.
Investment Returns
Standard Deviation

σ X  (-25  50) 2 (.2)  (50  50) 2 (.5)  (100  50) 2 (.3)

 43.30

σ Y  (-200  95) 2 (.2)  (60  95) 2 (.5)  (350  95) 2 (.3)

 193.71

Interpretation: Even though fund Y has a higher

average return, it is subject to much more variability
and the probability of loss is higher.
Investment Returns
Covariance

σ XY  (-25  50)(-200  95)(.2)  (50  50)(60  95)(.5)

 (100  50)(350  95)(.3)
 8,250

Interpretation: Since the covariance is large and

positive, there is a positive relationship between the
two investment funds, meaning that they will likely
rise and fall together.
 Questions
1) A probability distribution is an equation that:
A. associates a particular probability of occurrence with each
outcome.
B. measures outcomes and assigns values of X to the simple
events
C. assigns a value to the variability of the set of events
D. assigns a value to the center of the set of events

A. associates a particular probability of occurrence with

each outcome.
2) A lab orders 100 rats a week for each of the 52 weeks
in the year for experiments. Suppose the mean cost of
rats used in lab experiments is $13.00 per week.
Interpret this value.

A. Most of the weeks resulted in rat costs of $13.00

B. The median cost for the distribution of rat costs is $13.00
C. The expected or mean cost for all weekly rat purchases is
$13.00
D. The rat cost that occurs more often than any other is $13.00

C. The expected or mean cost for all weekly rat purchases

is $13.00
3) The connotation "expected value" or "expected
gain" from playing cards means:

A. The amount you expect to "gain" on a single play

B. The amount you expect to "gain" in the long run over many
plays
C. The amount you need to "break even" over many plays
D. The amount you should expect to gain if you are lucky

B. The amount you expect to "gain" in the long run over

many plays
 Probability Distributions
Probability
Distributions

Ch. 5 Discrete Continuous Ch. 6

Probability Probability
Distributions Distributions

Binomial Normal

Poisson Uniform

Hypergeometric Exponential
 Binomial Probability Distribution
A Widely occurring discrete probability distribution
Characteristics of a Binomial Probability
Distribution
 The experiment consists of a sequence of n identical trials
 An outcome on each trial of an experiment is classified
into 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 success and failure stay the same for
each trial.
 The trials are independent, meaning that the outcome of
one trial does not affect the outcome of any other trial.
 Binomial Distribution Formula
n! x nx
P(X=x |n,π)  π (1-π)
x! (n  x )!

P(X=x|n,π) = probability of x events of interest

in n trials, with the probability of an
“event of interest” being π for Example: Flip a coin four
each trial times, let x = # heads:
n=4
x = number of “events of interest” in sample,
(x = 0, 1, 2, ..., n) π = 0.5

n = sample size (number of trials 1 - π = (1 - 0.5) = 0.5

or observations) X = 0, 1, 2, 3, 4
π = probability of “event of interest”
 Counting Techniques
Rule of Combinations

 The number of combinations of selecting x

objects out of n objects is

n!
n Cx 
x! (n  x)!
 Counting Techniques
Rule of Combinations

 if you have 31 flavors to select from and no flavor of ice

cream can be used more than once in the 3 scoops?
 The total choices is n = 31, and we select X = 3.

31! 31! 31  30  29  28!

31 C3     31  5  29  4,495
3!(31  3)! 3!28! 3  2  1  28!
 The Binomial Distribution
Example
Suppose the probability of purchasing a defective
computer is 0.02. What is the probability of purchasing
2 defective computers in a group of 10?
x = 2, n = 10, and π = 0.02

n!
P(X  2 | 10, 0.02)   x (1   ) n  x
x! (n  x)!
10!
 (.02) 2 (1  .02)10 2
2!(10  2)!
 (45)(.0004)(.8508)
 .01531
 The Binomial Distribution
Shape

 The shape of the

P(X=x|5, 0.1)
binomial distribution .6
depends on the values .4
of π and n .2
 Here, n = 5 and π = .1 0
0 1 2 3 4 5 x

P(X=x|5, 0.5)
.6
.4
 Here, n = 5 and π = .5 .2
0
0 1 2 3 4 5 x
Binomial Distribution
Characteristics

Mean
μ  E(X)  n


 Variance and Standard Deviation

σ  n (1 -  )
2

σ  n (1 -  )
Where n = sample size
π = probability of the event of interest for any trial
(1 – π) = probability of no event of interest for any trial
A television manufacturing company chooses a
random sample of 15 sets to test them, and
assuming that the company has 6% failure rate.
What is the prob. that none of TV sets are defective?
A. 0.214 B. 0.395 C. 0.0395 D. 0.0214
B. 0.395
What is the prob. that exactly one of TV sets are defective?
A. 0.378 B. 0.538 C. 0.765 D. 0.901
A. 0.378
What is the prob. that two or fewer of TV sets are
defective?
A. 0.19 B. 0.45 C. 0.65 D. 0.94
D. 0.94
The probability that a particular type of smoke alarm
will function properly and sound an alarm in the
presence of smoke is 0.8. You have 2 such alarms in
your home and they operate independently.
 the probability that both sound an alarm in the presence
of smoke is:
A. 0.25 B. 0.42 C. 0.64 D. 0.82
C. 0.64
 The probability that neither sound an alarm in the
presence of smoke is
A. 0.04 B. 0.19 C. 0.25 D. 0.40
A. 0.04
 the probability that at least one sounds an alarm in the
presence of smoke is:

A. 0.25 B. 0.42 C. 0.64 D. 0.96

D. 0.96

 Whenever π = 0.5, the binomial distribution will:

A. always be symmetric B. be symmetric only if n is large
C. be right-skewed D. be left-skewed

A. always be symmetric

 Whenever π = 0.1, and n is small, the binomial

distribution will be: :
A. symmetric B. right-skewed
C. left -skewed D. none of the above
B. right-skewed
 The Poisson Distribution
 Apply the Poisson Distribution when:
 You wish to count the number of times an event
occurs in a given area of opportunity
 The probability that an event occurs in one area of
opportunity is the same for all areas of opportunity
 The number of events that occur in one area of
opportunity is independent of the number of events
that occur in the other areas of opportunity
 Such as the no. of customers arriving during the lunch
hour at a bank. You are interested in the no. of
customers who arrive each minute.
 The average number of events per unit is  (lambda)
 Poisson Distribution Formula

e  x
P( X  x |  ) 
x!
where:
x = number of events in an area of opportunity
 = expected number of events
e = base of the natural logarithm system (2.71828...)

 The shape of the Poisson Distribution depends on

the parameter  :
Poisson Distribution
Characteristics

Mean
μλ


 Variance and Standard Deviation

σ2  λ
σ λ
where  = expected number of events
 Questions
1) If the outcomes of a variable follow a Poisson
distribution, then their
A. mean equals the standard deviation
B. median equals the standard deviation
C. mean equals the variance
D. median equals the variance

C. mean equals the variance.

2) Which of the following about the binomial
distribution is not a true statement?
A. The probability of the event of interest must be constant
from trial to trial.
B. Each outcome is independent of the other
C. Each outcome may be classified as either "event of
interest" or "not event of interest."
D. The variable of interest is continuous

D. The variable of interest is continuous

The number of 911 calls in a small city has a
Poisson distribution with a mean of 10 calls a
day.
The probability of seven or eight 911 calls in a day will be:
A. 0.08 B. 0.20 C. 0.7 D. 0.9
B. 0.20
The probability of 2 or more 911 calls in a day will be:
A. 0.9995 B. 0.5326 C. 0.7463 D. 0.3254
A. 0.9995
The standard deviation of the number of 911 calls in a day
will be:
A. 7.26 B. 5.65 C. 4.36 D. 3.16
D. 3.16
The Department of Commerce in a particular state has
determined that the number of small businesses that
declare bankruptcy per month is approximately a Poisson
distribution with a mean of 6.4, What is the probability
that more than 3 bankruptcies occur next month.

A. 0.58 B. 0.25 C. 0.88 D. 0.14

C. 0.88