Chapter 4

12. According to a Gallup Poll, the extent to which employees are engaged with their workplace varies
from country to country. Gallup reports that the percentage of U.S workers engaged with their
workplace is more than twice as high as the percentage of German workers. The study also shows that
having more engaged workers leads to increased innovation, productivity, and profitability, as well as
reduced employee turnover. The results of the poll are summarized in the following table:

Country

Engagement United States Germany Total

Engaged 550 246 796

Not Engaged 1,345 1,649 2,994

Total 1,895 1,895 3,790

If an employee is selected at random, what is the probability that he or she

a. Is engaged with his or her workplace?

Probability = 796/3790 = 0.210026

b. Is a U.S worker?
Probability = 1895/3790 = 0.5

24. . According to a Gallup Poll, the extent to which employees are engaged with their workplace varies
from country to country. Gallup reports that the percentage of U.S workers engaged with their
workplace is more than twice as high as the percentage of German workers. The study also shows that
having more engaged workers leads to increased innovation, productivity, and profitability, as well as
reduced employee turnover. The results of the poll are summarized in the following table:

Country

Engagement United States Germany Total

Engaged 550 246 796

Not Engaged 1,345 1,649 2,994

Total 1,895 1,895 3,790

a. Given that a worker is from the United States, what is the probability that the worker is
engaged?

Probability = 550/1895 = 0.290237

b. Given that a worker is from the United States, what is the probability that the worker is not
engaged?

Probability = 1345/1895 = 0.709763

c. Given that a worker is from Germany, what is the probability that the worker is engaged

Probability = 246/1895 = 0.129815

d. Given that a worker is from Germany, what is the probability that the worker is not engaged
Probability = 1649/1895 = 0.870185

51. Enzyme- Linked immunosorbent assay (ELISA) is the most common type of screening test for
detecting the HIV virus. A positive result from an ELISA indicates that the HIV virus is present.
For most populations, ELISA has a high degree of sensitivity (to detect infection) and specificity
(to detect noninfection). Suppose the probability that a person is infected with the HIV virus for
a certain population is 0.015. If the HIV virus is actually present, the probability that the ELISA
test will give a positive result is 0.995. If the HIV virus is not actually present, the probability of a
positive result from ELISA is .01. If the ELISA has given a positive result, use Bayes’ thermo to
find the probability that the HIV virus is actually present.

Let’s denote following events as

HIV present: H
HIV not present: nH
Tested positive: P
Tested negative: N

p(H/P) = p(H)*p(P/H) / [p(H)*p(P/H) + p(nH)*p(P/nH)]

= 0.015*0.995 / (0.015*0.995+0.985*0.01)
= 0.602422
 Chapter 5

12. you are trying to develop a strategy for investing in two different stocks. The anticipated
annual return for 1,000 dollar investment in each stock under four different economic
conditions has the following probabilitydistribution:

Returns

Probability Economic Condition Stock x Stock Y

0.1 Recession -100 50
0.3 Slow growth 0 150
0.3 Moderate Growth 80 -20
0.3 Fast Growth 150 -100

A. Compute the expected return for stock X and for stock Y

E(x) = 0.1*(-100)+0.3*(0+80+150) = 59
E(y) = 0.1*50 + 0.3*(150-20-100) = 14

B. Standard deviation for stock X and for stock Y

σx = sqrt(0.1*(-100-59)^2+0.3*((0-59)^2+(80-59)^2+(150-59)^2)) = 78.67
σy = sqrt(0.1*(50-14)^2+0.3*((150-14)^2+(-20-14)^2+(-100-14)^2)) = 99.62

C. Covariance of stock X and Stock Y

ρxy = 0.1*(-100)*50+0.3*(0*150-80*20-150*100) - 59*14 = -6306

D. Would you invest in stock X or stock Y? Explain?

Stock x because it has higher expected return and lower risk (standard deviation).

13. Suppose that in problem 12 you wanted to create a portfolio that consist of stock X and
stock Y. Compute the portfolio expected return and portfolio risk for each of the following
percentages invested in stock X:

a. 30%

Expected return = 0.3*59+0.7*14 = 27.5

 Risk = sqrt((0.3*78.67)^2+(0.7*99.62)^2-2*0.3*0.7*6306) = 52.64

b. 50%
Expected return = 0.5*59+0.5*14 = 36.5

Risk = sqrt((0.5*78.67)^2+(0.5*99.62)^2-2*0.5*0.5*6306) = 29.58

c. 70%
Expected return = 0.7*59+0.3*14 = 45.5

Risk = sqrt((0.7*78.67)^2+(0.3*99.62)^2-2*0.7*0.3*6306) = 35.74

d. On the basis of the results of a through c which portfolio would you recommend and why?

Portfolio c is recommended because it has largest expected return and even though risk is
slightly higher than that of portfolio b, relatively larger expected return makes up for it.

25. When a customer places an order with Rudy’s online office supplies, a computerized
accounting information system (AIS) automatically checks to see if the customer has exceeded
his or her credit limit. Past records indicate that probability of customers exceeding their credit
limit is 0.05. Suppose that, on a given day, 20 customers place orders. Assume that the number
of customers that the AIS detects as having exceeding their credit limit is distributed as a
binomial random variable.

a. What are the mean and standard deviation of the number of customers exceeding their
credit limits?

Mean = 0.05*20 = 1

Standard deviation = sqrt(0.05*0.95*20) = 0.974679

b. What is the probability that zero customers will exceed their limits

Probability = (1-0.05)^20 = 0.358486

c. What is the probability that one customer will exceed his or her limit?

Probability = 20*0.05*(1-0.05)^19 = 0.377354

d. What is the probability that two or more customers will exceed their limits?

Probability = 1 - (0.358486+0.377354) = 0.26416

37. J.D Power and associates calculates and publishes various statistics concerning car quality.
The initial quality score measures the number of problems per new car sold. For 2009 model
cars, Ford had 1.02 problems per car and Dodge had 1.34 problems per car. Let the random
variable X be equal to the number of problems with a newly purchased 2009 Ford.

a. What assumptions must be made in order for X to be distributed as a Poisson random

variable? Are these assumptions reasonable?

Assumptions are that problems are randomly distributed and are independent of each other.

These assumptions might not be reasonable because generally one problem in a car may lead
to another, so independence is not always reasonable.

Make the assumptions as in (a), if you purchased a 2009 Ford, what is the probability that the
new car will have

B. Zero Problems

Probability = (1.02)^0 * e^(-1.02) / 0! = 0.360595

C. Two or fewer problems

Probability

= (1.02)^0*e^(-1.02) / 0! + (1.02)^1*e^(-1.02) /1! + (1.02)^2*e^(-1.02) / 2!

= 0.91598

D. Give an operational definition for problem. Give an operational definition for problem. Why
is the operational definition important in intrepreting the initial quality score?

Problem in the car is defined as i) which interferes with the normal working of the car and ii)
which hasn’t been caused due to a previously existing problem.

Operational definition is important because this generalizes the concept for all models and
thus the quality scores become comparable on the same scale.
Chapter 6

11. A statistical analysis of 1,000 long-distance telephone calls made from the headquarters of
the Bricks and Clicks computer corporation indicates that the length of these calls is normally
distributed, with u=240 and O = 40 seconds. (The u and o has tails on them)

a. What is the probability that a call lasted less than 180 seconds?

P(x<180) = P(z < (180-240)/40) = P(z < -1.5) = 0.0668

b. What is the probability that a call lasted between 180 and 300 seconds?

P(180<x<300) = P((180-240)/40< z < (300-240)/40) = P(-1.5 < z < 1.5) = 0.8664

c. What is the probability that a call lasted between 110 and 180 seconds?

P(110<x<180) = P((110-240)/40< z < (180-240)/40) = P(-3.25<z<-1.5) = 0.0662

d. 1% of all calls will last less then how many seconds?

Z for 0.01 = -2.3263

So, x = 240-2.3263*40 = 146.95

So, 1% of calls will last less than 146.95 seconds.

13. Many manufacturing problems involve the matching of machine parts, such as shafts that fit
into a valve hole. A particular design requires a shaft with a diameter of 22.000 mm, but shafts
with diameters between 21.990 mm and 22.010 mm are acceptable. Suppose that the
manufacturing process yields shafts with diameters normally distributed, with a mean of 22.002
mm and a standard deviation of 0.005 mm. For this process what is?

a. The proportion of shafts with a diameter between 21.99 mm and 22.00 mm?

P(21.99<x<22.00) = P((21.99-22.002)/0.005 < z < (22.00-22.002)/0.005)

= P(-2.4<z<-0.4)

= 0.3364
B. The probability that a shaft is acceptable?

P(21.990<x<22.010) = P((21.990-22.002)/0.005 < z <(22.010-22.002)/0.005)

= P(-2.4<z<1.6)

= 0.937

c. The diameter that will exceed by only 2% of the shafts?

For top 2%, z = 2.05375

X = 22.002+2.05375*0.005 = 22.01227

So,

d. What would be your answers in (a) through (c) if the standard deviation of the shaft
diameters were 0.004mm?

Answer to a) P(21.99<x<22.00) = P((21.99-22.002)/0.004< z < (22.00-22.002)/0.004)

= P(-3<z<-0.5)

= 0.3072

Answer to b) P(21.990<x<22.010) = P((21.990-22.002)/0.004< z < (22.010-22.002)/0.004)

= P(-3<z<2)

= 0.9759

Answer to c) X = 22.002+2.05375*0.004 = 22.01022

Chapter 7

21. Time spent using email-per session is normally distributed, with µ= 8 and σ= 2 minutes. If
you select a random sample of 25 sessions,

a. What is the probability that the sample mean is between 7.8 and 8.2 minutes?

Standard error = 2/sqrt(25) = 0.4

P(7.8<xbar<8.2) = P((7.8-8)/0.4 < z < (8.2-8)/0.4) = P(-0.5<z<0.5) = 0.3829

B. What is the probability that the sample mean is between 7.5 and 8 minutes?

P(7.5<xbar<8) = P((7.5-8)/0.4 < z < (8-8)/0.4) = P(-1.25<z<0) = 0.3944

C. If you select a random sample of 100 sessions, what is the probability that the sample mean
is between 7.8 and 8.2 minutes?

Standard error = 2/sqrt(100) = 0.2

P(7.8<xbar<8.2) = P((7.8-8)/0.2 < z < (8.2-8)/0.2) = P(-1<z<1) = 0.6827

D. Explain the difference in the results of (a) and (c)

In (a) sample size is only 25 but in (c) sample size is increased to 100, thus standard error has
decreased and so the probability that the sample mean would lie in an area about the
population mean has increased.

Chapter 8

9. The manager of a paint supply store wants to estimate the actual amount of paint contained
in 1 gallon cans purchased from a nationally known manufacturer. The manufacturer’s
specifications state that the standard deviation of the amount of paint is equal to 0.02 gallon. A
random sample of 50 cans is selected, and the sample mean amount of paint per 1 gallon can is
0.995 gallon.

a. Construct a 99% confidence interval estimate for the population mean amount of paint
included in a 1-gallon can.

For 99% confidence, critical z = -2.5758

Lower limit = 0.995 - 2.5758*0.02/sqrt(50) = 0.987715

Upper limit = 0.995 + 2.5758*0.02/sqrt(50) = 1.002285

So, confidence interval is (0.987715, 1.002285).

B. On the basis of these results, do you think that the manager has a right to complain to the
manufacturer? Why?
No, because the 99% confidence interval includes specified 1 gallon mark.

C. Must you assume that the population amount of paint per can is normally distributed here?
Explain?

Yes, because even though sampling distribution is normal irrespective of population

distribution, estimated standard deviation is based on the standard deviation of the
population. So, the latter must also be assumed to be normally distributed.

D. Construct a 95% confidence interval estimate. How does this change your answer to B?

For 95% confidence, z = 1.96

Lower limit = 0.995 -1.96*0.02/sqrt(50) = 0.98946

Upper limit = 0.995 + 1.96*0.02/sqrt(50) = 1.00054

So, 95% confidence interval is (0.98946, 1.00054). This has narrowed down from B.

36. If you want to be 99% confident of estimating the population proportion to within a
sampling error of ± 0.04, what sample size is needed?

E = z*sqrt(p*(1-p)/n)

Or, n = P*(1-P)*(z/E)² = 0.5*(1-0.5)*(2.5758/0.04)^2 = 1037

Chapter 9

3. If you use a 0.10 level of significance in a (two tailed)

Hypothesis test, what is your decision rule for rejecting null hypotheses that the population
mean is 500 if you use the Z test?

Critical values at 0.10 significance level = ±1.64485

So, reject null hypothesis if z<-1.64485 or z>1.64485

4. If you use a 0.01 level of significance in a (two tail) hypothesis test, what is your decision rule
for rejecting Ho: µ= 12.5 if you use the Z test.
Critical values at 0.01 level of significance = ±2.5758

So, reject null hypothesis if z<-2.5758 or z>2.5758

5. What is your decision in problem 4 if Zstat= -2.61

Reject null hypothesis

6. What is the P value if, in a two tail hypothesis test, Zstat = +2.00

Two-tailed p-value = 0.0455

13. Do students at your school study more than, less than, or about the same as students at
other business schools? Business Week reported that at the top 50 business schools, students
studied an average of 14.6 hours per week.(Data extracted from (Cracking the books,” Special
Report/online extra, www.businessweek.com, March 19, 2007). Set up a hypothesis test to try
to prove that the mean number of hours is studied at your school is different from the 14.6 hour
per week benchmark reported by business week.

a. State the null and alternative hypotheses

Ho: µ = 14.6

Ha: µ ≠ 14.6

B. Compute the p-value and interpret its meaning

z-statistic = (

c. Construct a 95% confidence interval estimate of the population mean life of the light bulbs.

D. Compare the results of A and C. What conclusions do you reach?

23. A manufacturer of chocolate candies uses machines to package as they move along the
filling line. Although the packages are labeled as 8 ounces, the company wants the packages to
contain a mean of 8.17 ounces so that virtually none of the packages contain less than 8 ounces.
A sample of 50 packages is selected periodically, and the packaging process is stopped if there is
evidence that the mean amount packaged is different from 8.17 ounces. Suppose that in a
particular sample of 50 packages, the mean amount dispensed is 8.159 ounces, with a sample
standard deviation of 0.051 ounce.

a. Is there evidence that the population mean amount is different from 8.17 ounces? (Use a 0.05
level of significance)
Ho: µ = 8.17

Ha: µ ≠ 8.17

t-statistic = (8.159-8.17)/(0.051/sqrt(50)) = -1.52513

Degree of freedom = 50-1 = 49

Critical values = ±2.0096

Since test statistic doesn’t lie in critical region, null hypothesis can’t be rejected.

Not enough evidence to say that population mean is different from 8.17 ounces.

B. Determine the P value and interpret its meaning.

P-value = 0.1337

This means if the actual mean was 8.17, the probability that a sample mean of 8.159 would
have occurred is 0.1337.

Chapter 10

12. A bank with a branch located in a commercial district of a city has developed an improved
process for serving customers during the noon-to-1 hour lunch period. The waiting time
(operationally defined as the time elapsed from when a customer enters the line until he or she
reaches the teller window) needs to be shortened to increase customer satisfaction. A random
sample of 15 customers is selected, and the results (in minutes) are as follows (and stored in
bank 1):

4.21 5.55 3.02 5.13 4.77 2.34 3.54 3.20

4.50 6.10 0.38 5.12 6.46 6.19 3.79

Suppose that another branch, located in a residential area, is also concerned with the noon to 1
lunch period. A random sample of 15 customers is selected, and the results are as follows (and
stored in bank 2)

9.66 5.90 8.02 5.79 8.73 3.82 8.01 8.35

10.49 6.68 5.64 4.08 6.17 9.91 5.47

a. Assuming that the population variances from both banks are equal, is there evidence of a
difference in the mean waiting time between the two branches? ( use α=0.05.)

Ho: µ1 = µ2

Ha: µ1 ≠ µ2

Mean1 = 4.2867, Mean2 = 7.1147, s1 = 1.638, s2 = 2.0822

t-statistic = (4.2867-7.1147)/sqrt((1.638^2+2.0822^2)/15) = -4.1343

Degree of freedom = 15+15-2 = 28

Critical values = ±2.0484

Since test statistic lies in critical region, null hypothesis is rejected.

There is a difference in mean waiting times.

B. Determine the p value in a and interpret its meaning

P-value = 0.0003

This means that if actually there was no significant difference in waiting times, then the
probability that the observed difference would have occurred was 0.0003.

c. In addition to equal variances, what other assumption is necessary in a

Two populations are normally distributed and samples are independent and random.

d. Construct and interpret a 95% confidence interval estimate of the difference between the
population means in the two branches.

For 95% confidence, with d.f. of 28, critical t = 2.0484

Lower limit = (4.2867-7.1147) - 2.0484 * sqrt((1.638^2+2.0822^2)/15) = -4.22918

Upper limit = (4.2867-7.1147) + 2.0484 * sqrt((1.638^2+2.0822^2)/15) = -1.42682

So, 95% confidence interval for difference of mean is (-4.22918, 1.42682).

45. A professor in the accounting department of a business school claims that there is more
variability in the final exam scores of students taking the introductory accounting course who
are not majoring in accounting then for students who are taking the course who are majoring in
accounting. Random samples of 13 non-accounting majors and 10 accounting majors are
selected from the professors class roster in his large lecture and the following results are
computed based on the final exam scores:

Non-accounting: N1=13 S2/1=210.2 (the 2/1 is really a 2 over the 1 I

couldn’t figure out how to type it though)

Accounting: N2=10 S2/2= 36.5

A. At the 0.05 level of significance, is there evidence to support the professors claim?

Ho: σ²1 ≤ σ²2

Ha: σ²1 > σ²2
F-statistic = 210.2/36.5 = 5.7589
Numerator d.f. = 12, denominator d.f. = 9
Critical value of F = 3.0729
Since F-statistic lies in critical region, null hypothesis is rejected.
Non-accounting variance is greater than that of accounting, and professor claim is
supported by the evidence.

B. Interpret the p value

P-value = 0.0066

This means that if first variance was actually not greater than the second, the probability that
observed variances would have occurred is 0.0066.

C. What assumption do you need to make in a about the two populations in order to justify
your use of the F test?

Assumption of normality and independence of samples

Chapter 11
13. A pet food company has a business objective of expanding its product line beyond its
current kidney- and shrimp- based cat foods. The company developed two new products, one
based on chicken livers and the other based on salmon. The company conducted an experiment
to compare the two new products with its two existing ones, as well with a generic beef-based
product sold in a supermarket chain.

For the experiment, a sample of 50 cats from the population at a local animal shelter was
selected. Ten cats were randomly assigned to each of the five products being tested. Each of
the cats was then presented with three ounces of the selected food in a dish at feeding time;
the researchers defined the variable to be measured as the number of ounces of food that the
cat consumed within a 10-minute interval that began when the filled dish was presented. The
results of this experiment are summarized in the following table and stored in Catfood.

Kidney Shrimp Chicken Liver Salmon Beef

2.37 2.26 2.29 1.79 2.09

2.62 2.69 2.23 2.33 1.87

2.31 2.25 2.41 1.96 1.67

2.47 2.45 2.68 2.05 1.64

2.59 2.34 2.25 2.26 2.16

2.62 2.37 2.17 2.24 1.75

2.34 2.22 2.37 1.96 1.18

2.47 2.56 2.26 1.58 1.92

2.45 2.36 2.45 2.18 1.32

2.32 2.59 2.57 1.93 1.94

a. At the 0.05 level of significance, is there evidence of a difference in the mean amount of food
eaten among the various products?

Ho: All means are equal

Ha: At least one mean is different

ANOVA table

Tests of Between-Subjects Effects

Dependent Variable:Food

Type III Sum of

Source Squares df Mean Square F Sig.

Type 3.659 4 .915 20.805 .000

Error 1.978 45 .044

Total 248.298 50

Corrected Total 5.637 49

a. R Squared = .649 (Adjusted R Squared = .618)

Since p-value is almost 0, null hypothesis is rejected.

There is evidence of a difference in the mean amount of food eaten among the various
products.

B. If appropriate, which products appear to differ significantly in the mean amount of food
eaten?

Tukey’s HSD Post Hoc test output is

Multiple Comparisons

Food
Tukey HSD

95% Confidence Interval

Mean Difference
(I) Type (J) Type (I-J) Std. Error Sig. Lower Bound Upper Bound

Beef ChickenLiver -.6140* .09377 .000 -.8804 -.3476

Kidney -.7020* .09377 .000 -.9684 -.4356

Salmon -.2740* .09377 .041 -.5404 -.0076

Shrimp -.6550* .09377 .000 -.9214 -.3886

ChickenLiver Beef .6140* .09377 .000 .3476 .8804

Kidney -.0880 .09377 .880 -.3544 .1784

Salmon .3400* .09377 .006 .0736 .6064

Shrimp -.0410 .09377 .992 -.3074 .2254

Kidney Beef .7020* .09377 .000 .4356 .9684

ChickenLiver .0880 .09377 .880 -.1784 .3544

 Salmon .4280* .09377 .000 .1616 .6944

Shrimp .0470 .09377 .987 -.2194 .3134

Salmon Beef .2740* .09377 .041 .0076 .5404

ChickenLiver -.3400* .09377 .006 -.6064 -.0736

Kidney -.4280* .09377 .000 -.6944 -.1616

Shrimp -.3810* .09377 .002 -.6474 -.1146

Shrimp Beef .6550* .09377 .000 .3886 .9214

ChickenLiver .0410 .09377 .992 -.2254 .3074

Kidney -.0470 .09377 .987 -.3134 .2194

Salmon .3810* .09377 .002 .1146 .6474

Based on observed means.

The error term is Mean Square(Error) = .044.

*. The mean difference is significant at the .05 level.

If p-values is less than 0.05, then the two pairs differ in mean.

Thus, Beef and Salmon differ from all other products while Chicken Liver, Shrimp and Kidney
have same mean.

C. At the 0.05 level of significance, is there evidence of a significant difference in the variation in
the amount of food eaten among the various products?

Ho: All variances are equal

Ha: At least one variance is different

Levene's Test of Equality of Error Variancesa

Dependent Variable:Food

F df1 df2 Sig.

2.339 4 45 .069

Tests the null hypothesis that the error variance of

the dependent variable is equal across groups.

a. Design: Intercept + Type

Since p-value is .069, null hypothesis can’t be rejected.

There is no evidence of significant different in variation in amount of food eaten.
D. What should the pet food company conclude? Fully describe the pet companies options with
respect to its products?

Chicken liver, though seems better than Beef and Salmon, isn’t much different (may be
inferior) from already existing Kidney and Shrimp. So, this may be cancelled.

Salmon seems better than only Beef, but looks inferior to all other products. So Salmon based
product can be cancelled too.

Chapter 13

36. A mail order catalog business that sells personal computer supplies, software, and hardware
maintains a centralized warehouse for the distribution of products ordered. Management is
currently examining the process of distribution from the warehouse and is interested in studying
the factors that affect warehouse distribution costs. Currently, a small handling fee is added to
the order, regardless of the amount of the order. Data that indicates the warehouse
distribution costs and the number of orders received have been collected over the past 24
months. These are the results:

Months Distribution Cost Number of orders

(Thousands of Dollars)

1 52.95 4,015

2 71.66 3,806

3 85.58 5,309

4 63.69 4,262

5 72.81 4,296

6 68.44 4,097

7 52.46 3,213

8 70.77 4,809

9 82.03 5,237
10 74.39 4,732

11 70.84 4,413

12 54.08 2,921

13 62.98 3,977

14 72.30 4,428

15 58.99 3,964

16 79.38 4,582

17 94.44 5,582

18 59.74 3,450

19 90.50 5,079

20 93.24 5,735

21 69.33 4,269

22 53.71 3,708

23 89.18 5,387

24 66.80 4,161

a. Assuming a linear relationship, use the least squares method to find the regression
coefficients b0 and b1

b0 = 0.4576
b1 = 0.0161

b. Predict the monthly warehouse distribution costs when the number of orders is 4,500

Distribution cost = 0.4576 + 0.0161*4500 = 72.9076 (thousands of dollars)

c. Plot the residuals versus the time period

D. Compute the Durbin-Watson Statistic. At the o.05 level of significance, is there evidence of
positive autocorrelation among the residuals?

Durbin-Watson Statistic = 2.07526

Critical value lower: 1.27276, Critical value upper: 1.44575

Since test statistic is greater upper critical value, there is evidence of no positive
autocorrelation.

E. Based on the result of c and d, is there reason to question the validity of the model?

Yes, the model is reasonably valid, as the errors seems randomly distributed and are
uncorrelated.