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Mean, Variance and Expected Value of Discrete Random Variables

This lesson discusses finding the mean and variance of discrete random variables. It provides examples of calculating the mean for experiments involving drawing balls from a box with numbered balls and selling raffle tickets. The document also presents practice problems asking students to calculate expected values for scenarios like coin flips and insurance policies.

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Grantt Christian
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335 views22 pages

Mean, Variance and Expected Value of Discrete Random Variables

This lesson discusses finding the mean and variance of discrete random variables. It provides examples of calculating the mean for experiments involving drawing balls from a box with numbered balls and selling raffle tickets. The document also presents practice problems asking students to calculate expected values for scenarios like coin flips and insurance policies.

Uploaded by

Grantt Christian
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Lesson #3

Mean and
Variance of a
Discrete
Random
Variable
Workplan
1. Routines
- Attendance
- 5s check
- Class rules
1. Review
2. Discussion
3. Practice problem
4. Screen Break
5. Moodle Forum
6. Wrap up
Class rules/Netiquette
1. Turn on your camera.
2. Mute your mic. Unless
teacher asks you to turn
it on.
3. Do not abuse the chat
box.
4. Think before you type.
5. Set a respectful tone.
6. Avoid sarcasm.
In this lesson you
will learn to:
1. Find the mean/Expected
value
of discrete random
variables
 
 
 
Example 1: Five balls
numbered 1,2,3,4, and 5 are
placed in a box. One is
selected, its number is noted,
and then it is replaced. If this
experiment is repeated many
times, find the mean,
variance, and standard
deviation of the numbers on
the balls.
Number on ball x 1 2 3 4 5
Probability P(x) 1/5 1/5 1/5 1/5 1/5

 
 
Example 2:

Five hundred raffle tickets are sold at


₱25 each for three prizes of ₱4,000,
₱2500, and ₱1,000. After each prize
drawing, the winner ticket is then
returned to the collection of tickets.
What is the expected value if a person
purchases four tickets?
Gain 3900 2400 900 -100
Probability 4/500 4/500 4/500 496/500

 
Example 3. The RFS Electronics sells
Iphones for Apple Inc. RFS usually
sells the number of Iphones on Sunday.
The store manager has established the
following probability distribution for
the number of Iphones the store
expects to sell on a particular Sunday.

How many Iphones should the store


manager expect to sell?
Gain 0 1 2 3 4 5
Probab 0.05 0.10 0.12 0.15 0.18 0.40
ility

 
Example #1
Suppose you pay $1.00 to
roll a fair die with the
understanding that you will
get back $3.00 for rolling a 6
or a 2, nothing otherwise.
What is your expected net
winnings?
Example #2
You take out a fire insurance policy on your home.
The annual premium is $300. In case of fi re, the
insurance company will pay you $200,000. The
probability of a house fire in your area is 0.0002.

a. What is the expected value?

b. What is the insurance company’s expected


value?

c. Suppose the insurance company sells 100,000


of these policies. What can the company expect
to earn?
a. Expected value = (0.0002)(199,700) + (0.9998)
(−300) = − $260.00 Fire No Fire
The expected value over many years is −$260 per
year. Of course, your hope is that you will never
have to collect on fire insurance for your home.

b. The expected value for the insurance company


is the same, except the perspective is switched.
Instead of − $260 per year, it is +$260 per year.
Of this, the company must pay a large percent
for salaries and overhead.
c. The insurance company can expect to gross
$30,000,000 in premiums on 100,000 such
policies. With a probability of 0.0002 for fire,
the company can expect to pay on about 20 fires.
This leaves a gross profit of $26,000,000.
Problem #1 (TRY!)
A child asks his parents for some money.

The parents make the following offers.


Father’s offer: The child flips a coin. If the coin
lands heads up, the father will give the child $20.
If the coin lands tails up, the father will give the
child nothing.

Mother’s offer: The child rolls a 6-sided die. The


mother will give the child $3 for each dot on the
up side of the die.

Which offer has the greater expected value?


Problem #2 (TRY!)
An insurance company charges $150 for
a policy that will pay for at most one
accident. For a major accident, the
policy pays $5,000; for a minor
accident the policy pays $1,000. The
company estimates that the probability
of a major accident is 0.005, and the
probability of a minor one is 0.08.

What is the expected value of the


insurance to the company?
Problem #4 (TRY)
Which of the following should your
company develop?
Cellphone C: Cost of Development = $2M.
Projected Sales:
40% chance of net sales of $5,000,000
40% chance of net sales of $3,000,000
20% chance of net sales of $1,500,000
Cell phone D: Cost of development:
$1,500,000
Projected Sales:
15% chance of net sales of $4,000,000
75% chance of net sales of $2,000,000
10% chance of net sales of $500,000
Screen
Break

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