Assignment 2

1. Let A, B, C, D, and E be sample space outcomes forming a sample space. Suppose

that P(A)=0.2, P(B)=0.15, P(C)=0.3, and P(D)=0.2. What is P(E)? Explain how you
got your answer.
Solution
The sum of the probabilities of the individual outcomes sum to 1.
P(E) = 1 – (.2 + .15 + .3 + .2) = .15

2. The card game of Euchre employs a deck that consists of all four of each of the
aces, kings, queens, jacks, tens, and nines (one of each suit—clubs, diamonds, spades,
and hearts). Find the probability that a randomly selected card from a Euchre deck is
a. A jack (J)
b. A spade (S)
c. A jack or an ace (A)
d. A jack or a spade.
e. Are the events J and A mutually exclusive? J and S? Why or Why not?
Solution: There are 24 total cards.

4 1
P(J )  24
a. 6

b.

c.

d.

        e.Yes, no; A jack and an ace cannot occur in a single draw, where a jack and a spade can 
occur simultaneously.

3. Fifteen percent of the employees in a company have managerial positions, and 25

percent of the employees in the company have MBA degrees. Also, 60 percent of the
managers have MBA degree. Using the probability formulas,
a. Find the proportion of employees who are managers and have MBA degrees.
b. Find the proportion of MBAs who are managers.
c. Are the events being a manager and having an MBA independent? Justify your
answer.
Solution: a. 
P( Manager  MBA)  P( Manager) P( MBA | Manager)  (.15)(.6)  .09
P ( Manager  MBA .09
b.  P( Manager | MBA )    .36
P ( MBA) .25

c.  No, P(Manager | MBA)  P(Manager)

4. In a survey of 100 insurance claims, 40 are fire claims (FIRE), 16 of which are
 fraudulent (FRAUD). Also, there are a total of 40 fraudulent claims.
a. Construct a contingency table summarizing the claims data. Use the pairs of events
FIRE and FIRE , FRAUD and FRAUD .
b. What proportion of the fire claims are fraudulent?
c. Are the events a claim is fraudulent and a claim is a fire claim independent? Use
your probability of part b to prove your answer.
  Solution: a. Fire Fire Total
Fraud 16 24 40

Fraud 24 36 60

Total 40 60 100

16
b. P ( Fraud Fire)   .4
40

16
c. Yes; P ( Fraud Fire)   .4 = P(Fraud)
40

5. Each month a brokerage house studies various companies and rates each company’s
stock as being either “low risk” or “moderate to high risk.” In a recent report, the
brokerage house summarized its findings about 15 aerospace companies and 25 food
retailers in the following table:
Company Type Low Risk Moderate to High Total
Risk
Aerospace 6 9 15
company
Food retailer 15 10 25
Total 21 19 40

If we randomly select one of the total 40 companies, find

a. The probability that the company’s stock is moderate to high risk given that the
firm is an aerospace company.
b. The probability that the company’s stock is moderate to high risk given that the
firm is a food retailer.
c. Determine if the company type is independent of the level of risk of the firm’s
stock.
Solution: a. b.

c. Dependent. For two events to be independent, P(Aero | Low) = P(Aero)

P(Aero | Low) = 2/7  but the P(Aero) = 3/8.  They are not equal.