Lecture 7: Normal Distribution

1
The Normal Distribution
 This is the most important continuous
distribution considered here.
– Many random variables can be properly
modeled as normally distributed.
– Many distributions can be approximated by a
normal distribution.
– The normal distribution is the cornerstone
distribution of statistical inference.

2
  Normal distribution
– A random variable X with mean µ and
variance σ 2 is normally distributed if its
probability density function is given by

1 −(1 / 2σ 2 )[( x − µ )]2

f ( x) = e −∞≤ x ≤∞
σ 2π
where π = 3.14159... and e = 2.71828...

3
How does the standard deviation affect the shape of f(x)?
σ =2
σ =3
σ =4

How does the expected value affect the location of f(x

µ = 10 µ = 11 µ = 12

4
 Finding Normal Probabilities
– Two facts help calculate normal probabilities:
 The normal distribution is symmetrical.

 Any normal distribution can be transformed into a

specific normal distribution called

“STANDARD NORMAL DISTRIBUTIOIN”

 Example
– The time it takes to write a standard entrance
exam is normally distributed, with a mean of 60
minutes and a standard deviation of 8 minutes.
– What is the probability that a student will finish
the in between 60 and 70 minutes? 5
  Solution
– If X denotes the time taken to write the exam,
we seek the probability P(60<X<70).
– This probability can be calculated by creating a
new normal variable the standard normal
variable.
Every normal variable
X − µTherefore, once probabilities for
with some µ and σ , can
Z= x calculated, probabilities of a
are
be transformed into this Z.
σx normal variable can found.

E(Z) = 0 V(Z) = 1

6
  Example - continued
60- 60 X− µ 70- 60
P(60<X<70) = P( < σ < )
8 8
= P(0<Z<1.25)

To complete the calculation we need to compute

the probability under the standard normal distribution

7
Standard normal probabilities have been
calculated and are provided in a table . P(0<Z<z0)

The tabulated probabilities correspond

to the area between Z=0 and some Z = z0 >0

Z = 0 Z = z0
z 0 0.1 ……. 0.05 0.06
0.0 0.0000 0.0040 0.0199 0.0239
0.1 0.0398 0.0438 0.0596 0.636
. . . . .
. . . . .
1.0 0.3413 0.3438 0.3531 0.3554
. . . . .
. . . . .
1.2 0.3849 0.3869 ……. 0.3944 0.3962
. . . . . .
. . . . . .

8
  Example - continued
60- 60 X− µ 70- 60 0.3944
P(60<X<70) = P( < σ < )
8 8
0.3944
0.3944
0.3944
= P(0<Z<1.25)
= 0.3944
0.3944 0.3944
In this example z0 = 1.25
z 0 0.1 ……. 0.05 0.06
0.0 0.0000 0.0040 0.0199 0.0239
0.1 0.0398 0.0438 0.0596 0.636
. . . . .
. . . . .
1.0 0.3413 0.3438 0.3531 0.3554
. . . . .
. . . . .
1.2 0.3849 0.3869 ……. 0.3944 0.3962
. . . . . .
. . . . . .

9
 The symmetry of the normal distribution
makes it possible to calculate probabilities
for negative values of Z using the table as
follows:

-z0 0 +z0

P(-z0<Z<0) = P(0<Z<z0)

10
 Example 7.2
– Determine the following probabilities:
P(Z>1.47) = ?

0.5 = P(Z>1.47)
- P(0<Z<1.47)

0 1.47

P(Z>1.47) = 0.5 - 0.4292 = 0.0708

11
 P(-2.25<Z<1.85) = ?

P(-2.25<Z<0).4878
=? P(0<Z<1.85) = .4678
P(0<Z<2.25) = .4878

-2.25 0 1.852.25

P(-2.25<Z<1.85) = 0.4878 + 0.4678 = 0.9556

12
 P(.65<Z<1.36) = ?

P(0<Z<1.36) = .4131
P(0<Z<.65) = .2422

0
.65 1.36

P(.65<Z<1.36) = .4131 - .2422 = .1709

13
 Example 7.3
– The rate of return (X) on an investment is
normally distributed with mean of 30% and
standard deviation of 10%
– What is the probability that the return will exceed
55%? P(X>55) = P(Z>
55 - 30
) = P(Z>2.5)
10
=.5 - P(0<Z<2.5) = .5 - .4938 = .0062

µ = 30%X = 55%

0 Z =2.5
14
 – What is the probability that the return will be
less than 22%?

22% 30%

22 - 30
P(X<22) = P(Z< ) = P(Z< - .8) -.8 0 .8
10
=P(Z>.8) = 0.5 - P(0<Z<.8) = 0.5 - .2881 = .2119
15
 Example 7.4
– If Z is a standard normal variable, determine
the value z for which P(Z<z) = .6331.

0.6331

0 z z = .34
.5 .1331

16
 Example 7.5
– Determine z.025
 Solution
– zA is defined as the z value for which the area to
the right of zA under the standard normal curve
is A.
0.475
0.025 0.025

-1.96 - Z0.025 0 Z0.025 1.96

17