Stat 104: Quantitative Methods for Economics

Homework 4: Due Friday, February 27

Homework policy for campus students: Homework is due by 4:00 pm on the due date.
Homework is to be handed in to the mailbox of your assigned TF located outside the 300
suite of the Science Center. Late homework will not be accepted. You are encouraged to
discuss homework problems with other students (and with the instructor and TFs, of
course), but you must write your final answer in your own words. Solutions prepared in
committee or by copying someone elses paper are not acceptable.

1) Let X be a random variable with E(X) = 100 and Var(X) = 15. Find the following.
a)
b)
c)
d)

E ( X2 ) [see notes for a special formula for this]

E ( 3X + 10 )
E (-X)
Standard deviation of X ?

2) For the following, determine which of the following probability experiments represents a
binomial experiment. If the probability experiment is not a binomial experiment, state
why.
a) A random sample of 15 college seniors is obtained, and the individuals
selected are asked to state their ages.
b) A random sample of 30 cars in a used car lot is obtained, and their mileages
recorded.
c) An experimental drug is administered to 100 randomly selected individuals,
with the number of individuals responding favorably recorded.
d) A poll of 1200 registered voters is conducted in which the respondents are
asked whether they believe Congress should reform Social Security.
e) A basketball player who makes 80% of her free throws is asked to shoot free
throws until she misses. The number of free throw attempts is recorded.

3) The random variable X has a binomial distribution with E(X)=7.5 and Var(X)=5.25. Find
n and p for this distribution [use the formulas for mean and variance].

4) Suppose X is a binomial random variable with n=10 and p=0.2. Feel free to use a
computer to answer the following:
a)
b)
c)
d)
e)
f)

P(X=0)
P(X=2)
P(X<2)
P(X>8)
E(X)
Var(X)

5) According to flightstats.com, American Airlines flights from Dallas to Chicago are on

time 80% of the time. Suppose 15 flights are randomly selected, and the number of ontime flights is recorded.
a)
b)
c)
d)
e)

Explain why this is a binomial experiment.

Find and interpret the probability that exactly 10 flights are on time.
Find and interpret the probability that fewer than 10 flights are on time.
Find and interpret the probability that at least 10 flights are on time.
Find and interpret the probability that between 8 and 10 flights, inclusive, are
on time.
f) Find the mean and variance of the number of on time flights.

6) A survey on British Social Attitudes asked respondents if they had ever boycotted goods
for ethical reasons (Statesman, January 28, 2008). The survey found that 28% of the
respondents have boycotted goods for ethical reasons.
a) In a sample of six British citizens, what is the probability that two have ever
boycotted goods for ethical reasons?
b) In a sample of six British citizens, what is the probability that at least two
respondents have boycotted goods for ethical reasons?
c) In a sample of ten British citizens, what is the probability that none have
boycotted goods for ethical reasons?
d) In a sample of ten British citizens, what is the expected number of people that
have boycotted goods for ethical reasons?

7) Brandon Lang is a creative entrepreneur who has developed a novelty soap item called
Jackpot to target consumers with a gambling habit. Inside each bar of Jackpot shower
soap is a single rolled-up bill of U.S. currency. The currency (rolled up and sealed in
shrink-wrap) is appropriately inserted into the soap mixture prior to the cutting and
stamping procedure. The distribution of paper currency (per 1000 bars of soap) is given
in the following table.

a) What is the expected amount of money in a single bar of Jackpot soap?

b) What is the standard deviation of the money in a single bar of Jackpot soap?
c) How many bars of soap would a customer have to buy so that, on average, he or
she has purchased three bars containing a $50 or $100 bill?
d) If a customer buys 8 bars of soap, what is the probability that at least one of these
bars contains a bill of $20 or larger?

8) The joint probability mass function of random variables X and Y is given by

P ( X = 1 and Y = 1) = 1/ 4 P ( X = 1 and Y = 2) = 1 / 2
P ( X = 2 and Y = 1) = 1 / 8 P ( X = 2 and Y = 2) = 1/ 8

a) Are X and Y independent? Justify your answer

b) Compute P(XY<3)
c) Compute P(X+Y>2)

9) A large insurance agency services a number of customers who have purchased both a
homeowner's policy and an automobile policy from the agency. For each type of policy, a
deductible amount must be specified. For an automobile policy, the choices are $100 and
$250, whereas for a homeowner's policy, the choices are 0, $100, and $200. [editorial
note-this problem is a pain-it is a lot of algebra. It is good to do these calculations once
by hand. Feel free to curse while you work on this problem.]
Suppose an individual with both types of policy is selected at random from the agency's
files. Let
X = the deductible amount on the auto policy, and
Y = the deductible amount on the homeowner's policy.
Suppose the following table represents the joint distribution of X and Y:
Y
P(x,y)
X

a)
b)
c)
d)
e)
f)
g)
h)

0
0.05
0.25

100
250

100
0.1
0.05

200
0.3
0.25

What are the mean and standard deviation of X?

What are the mean and standard deviation of Y?
What is the covariance between X and Y?
What is the correlation between X and Y?
Calculate E(X+Y).
Calculate Var(X+Y).
Are X and Y independent? Justify your answer.
What is the expected value of Y given X= 250?

10) An investor plans to divide $ 200,000 between two investments. The first yields a certain
profit of 10%, whereas the second yields a profit with expected value 18% and standard
deviation 6%. If the investor divides the money equally between these two investments,
find the mean and standard deviation of the total profit. Assume the correlation between
the two investments is 0.2.
11) The random variable X has probability density function as follows:

a) Graph the probability density function for X.

b) Show that the density has the properties of a proper probability density function
(that is the area under the density is one).
c) Find the probability that X takes a value between 0.5 and 1.5.

12) Delta Airlines quotes a flight time of 2 hours, 5 minutes for its flights from Cincinnati to
Tampa. Suppose we believe that actual flight times are uniformly distributed between 2
hours and 2 hours, 30 minutes.
a. Show the graph of the probability density function for flight times.
b. What is the probability that the flight will be no more than 5 minutes late?
c. What is the probability that the flight will be more than 10 minutes late?
d. What is the expected flight time?
13) For the standard normal random variable Z, compute the following:
a)
b)
c)
d)
e)
f)
g)

P(0 Z 0.73)
P(1.50 Z 0)
P( Z 0.44)
P(1.50 Z 0.40)
P( Z 5.23)
E (3 + 4Z )
Var (4 + 3Z )

14) The time needed to hand stitch a Swoosh soccer ball is normally distributed with mean 41
minutes and standard deviation 3 minutes. If 4 workers start at the same time, what is the
probability that at least one of them will complete their soccer ball in under 44 minutes?

15) The times taken to complete an introduction to business statistics exam have a normal
distribution with a mean of 65 minutes and standard deviation of 7 minutes. There are
150 students who took the exam and students are allowed a total of 75 minutes to take the
exam.
a) What is the chance that Mike finished his exam in 63 to 72 minutes?
b) What is the expected number of students who finished in less than 75 minutes?
c) As some students were not able to finish the exam in time, the instructor allowed
6 more minutes. Given he already spent 75 minutes on the exam, what is the
chance that Chris finished his exam in extended time, that is between 75 and 81
minutes

16) The sum of two independent Uniform(0,1) random variables has an interesting shape.
We will investigate that in this problem.

a) Run the following code in Stata and give us the resulting histograms. Describe the
shape of the histogram. Are you surprised by this shape?

set obs 1000

generate rand1=uniform()
generate rand2=uniform()
generate mysum=rand1+rand2
histogram rand1
histogram rand2
histogram mysum
b) If all went well, your histogram of the sum of the two uniform random variable
should look something like this:

Using the triangle in the picture, calculate the probability that the sum of the two
uniforms is less than 1.5.
c) We are now going to find this probability empirically using the histogram. Run the
following commands in Stata:
generate dummy = (mysum<1.5)
summarize dummy
Is the mean of the dummy variable close to the value you found in part (b)? What
does the mean of the dummy variable represent?