Peter F.

Drucker and Masatoshi Ito Graduate School of Management

Claremont Graduate University
Quantitative Methods for Management (MGT 306)
Fall 2006
Professor Roberto Pedace
Answer Key: Midterm Exam
There are 11 questions. Point values for each question are given in bold []. Proper
notation and intermediate calculations must be shown to receive full marks. You have
120 minutes. Good luck!
1. Suppose the average monthly welfare (TANF) payment is $376 and the standard
deviation is $40.
(a) [2 points] Using Chebyshevs Theorem, determine the upper and lower bounds of
the average welfare payment, such that 95% of the population is included.
Using Chebyshevs Theorem:
1
0.95 = 1 2
k
k = 4.47
Therefore, at least 95% of the measurements will lie within 4.47 standard
deviations of the mean
376 4.47(40)
[197.2;554.8]
(b) [2 points] How would your answer to (a) change if you knew the distribution was
approximately bell-shaped? Explain.
If the distribution is bell-shaped, the Empirical Rule applies. Therefore,
approximately 95% of the measurements will lie within 2 standard deviations
of the mean
376 2(40)
[296;456]
Questions 2-4
The temperature measured on the top of Big Bear Mountain at 10:00am on 12
consecutive days is as follows:
59, 65, 55, 39, 42, 49, 50, 51, 47, 50, 69, 50
2. [3 points] Find the mean, median, and mode.

X = 52.17
Med = 50

Mode = 50
3. [2 points] Find the sample variance and standard deviation.
s X2 = 75.61
s X = 8.70
4. [3 points] What percentage of the observations fall within two standard deviations of
the mean? Comment (i.e., say something about the distribution of the data and offer
some supporting evidence without actually graphing the relative frequency
distribution).

52.17 2(8.70) [34.77;69.57]

100% of the measurements are within two standard deviations. Also, 67% of
the measurements are within one standard deviation. These two
characteristics are approximately consistent with the Empirical Rule. In
addition, the mean, median, and mode are nearly identical which suggests
that the distribution is nearly symmetrical. Together, this all suggests that
the distribution may be approximately bell-shaped.
5. At a college, 70 percent of the students are female and 50 percent of the students
participate in intramural athletics. 25 percent of the students are neither female nor
intramural athletic participants.
Define events and construct a probability table.
F: female, F : male, A: intramural athletics, A : no intramural athletics

A
A

F
0.45
0.25
0.70

F
0.05
0.25
0.30

0.50
0.50
1.00

(a) [3 points] If a student is male, what is the probability that he participates in

intramural athletics?
P (A | F ) =

P ( AF ) 0.05
=
= 0.17
P (F ) 0.30

(b) [3 points] If a student participates in intramural athletics, what is the probability

that she is female?
P (F | A) =

P( AF ) 0.45
=
= 0.90
P ( A)
0.50

6. Answer the following questions:

(a) [2 points] Explain what is meant by the terms independent and mutually
exclusive.
Independent: the occurrence of one event does not affect the probability of
another event occurring.
Mutually Exclusive: the events do not share an intersection (i.e., cannot occur
simultaneously); P ( AB ) = 0
(b) [2 points] Is it possible for events that are not mutually exclusive to be
independent? Give an example.
Yes, as long as P ( AB ) = P ( A) P ( B ) .
Example: Tossing two coins, where observing a head on the first coin is
event A and observing a head on the second coin in event B. Both of these
events may be observed, so they are not mutually exclusive. However, they
1 1 1
are independent since P ( AB ) = P ( A) P ( B ) = = .
2 2 4
7. A consulting firm submitted a bid for a large research project. The firms
management initially felt they had a 50-50 chance of getting the project. However,
the agency to which the bid was submitted subsequently requested additional
information on the bid. Past experience indicates that for 75% of the successful bids
and 40% of the unsuccessful bids, the agency requested additional information.
A: successful bid
B: request for additional information
(a) [1 point] What is the probability of the bid being successful prior to the request
for additional information?
P ( A) = 0.50

(b) [1 point] What is the probability of a request for additional information given that
the bid will ultimately be successful?
P ( B | A) = 0.75

(c) [3 points] What is the probability that the bid will be successful given a request
for additional information?
P( A | B) =

P ( A) P ( B | A)
(0.50)(0.75)
=
= 0.652
P ( A) P( B | A) + P ( A ) P ( B | A ) (0.50)(0.75) + (0.50)(0.40)

8. [4 points] The unemployment rate in April 2003 was 5.8% (source: Bureau of Labor
Statistics). Suppose that 100 employable people are selected randomly. What is the
probability that at least 4 are unemployed? Use the binomial distribution to compute
the exact probability and then compute the Poisson approximation.
Binomial:
P( X 4) = 1 (P( X = 3) + P( X = 2) + P( X = 1) + P( X = 0) )
= 1 0.1617997 = 0.8382
Poisson:
P( X 4) = 1 (P( X = 3) + P( X = 2) + P( X = 1) + P( X = 0) )
1 0.1699639 = 0.8300
9. [4 points] Suppose that the percentage of returns for a given year for all stocks listed
on the New York Stock Exchange are normally distributed with a mean ( X ) of 12.4
percent and a standard deviation ( X ) of 20.6 percent. Consider drawing a random
sample of n = 5 stocks from the population of all stocks and calculating the mean
return ( X ) of the sampled stocks. Find the interval containing 95.44 percent of all
possible sample mean returns.
X will have a normal distribution regardless of sample size because X is
normally distributed (Central Limit Theorem). Using z, the standard normal,
we can see that 95.44% of all values are within 2 standard deviations.
20.6
12.4 2
[ 6.03, 30.83]
5
10. Assume that you have a population with a mean X = 3.2 and variance X2 = 2 .
(a) [3 points] Describe the most important features of the sampling distribution of the
sample mean ( X ).
According to the CLT, the distribution of X will be normal with

2
X = X = 3.2 and X = X =
regardless of the distribution of X, as
n
n
long as sample size is large ( n 25 ).
(b) [3 points] Will the shape of the population distribution affect your answer to part
(a)? Will the size of the sample affect your answer to part (a)? Explain.
The shape of the population distribution only affects the answer in (a) if
sample size is small ( n < 25 ). The only way to ensure that X will be normal
with smaller sample sizes ( 10 < n < 25) is if X has a symmetrical distribution.
With very small sample sizes ( n < 10 ), the only way to ensure that X will be
normal is if X is also normal.

11. In 2002, the mean ( X ) tuition cost at state universities throughout the United States
was $4260 per year (St. Petersburg Times, December 11, 2002). Assume the
standard deviation ( X ) was $900 and that a random sample of 50 universities was
selected.
(a) [3 points] What is the probability that the simple random sample will provide a
sample mean greater than $4500?

4500 4260
P (X > 4500) = P z >
= P( z > 1.89) = 0.5000 0.4706 = 0.0294
900

50

(b) [3 points] Do you think the probability of randomly drawing a single university
with tuition greater than $4500 would be greater or less than the probability found
in part (a)? Explain your logic without calculating.
900 2
compared to
50
900 2 . Therefore, extreme values are more likely when randomly selecting
one observation rather than numerous and taking an average.
The probability would be greater. X has less variance -

(c) [3 points] Is there any way to calculate the exact probability for part (b)? If so,
find the probability and explain the legitimacy of your procedure.
Yes, but since the calculation relies on using the standard normal
distribution, the distribution of X must be normal. The problem does not
specify this, so it would have to be assumed in order to perform the following
calculation.
4500 4260

P ( X > 4500 ) = P z >

= P( z > 0.27 ) = 0.5000 0.1064 = 0.3936
900