Title: Normal Distribution.

1. General Hospital's patient account division has compiled data on the age of accounts receivables. The data
collected indicate that the age of the accounts follows a normal distribution with mean 28 days and standard
deviation 8 days.
a. What proportion of the accounts are between 20 and 40 days old? Ans: 0.7745
b. What proportion of the accounts are less than 30 days old? Ans: 0.5987

2. The time required to complete a final examination in a particular college course is normally distributed, with
mean of 80 minutes and a standard deviation of 10 minutes. Answer the following questions.
a. What is the probability of completing the exam in one hour or less? Ans: 0.0228
b. What is the probability a student will complete the exam in a time between 60 and 75 minutes?
Ans: 0.2857

3. A test is normally distributed with a mean of 40 and a standard deviation of 7. (a) What score would be needed
to be in the 85th percentile? (b) What score would be needed to be in the 22nd percentile?
Ans: (a) 47.28 (b) 34.61

4. Assume a normal distribution with a mean of 90 and a standard deviation of 7. What limits would include
the middle 65% of the cases. Ans: 83.46 to 96.55

5. The reaction time to a certain psychological experiment is considered to be normally distributed with a mean of
20 seconds and a standard deviation of 4 seconds.
a. What proportion of subjects take between 15 and 30 seconds to react? Ans: 0.8882
b. What proportion of subjects take longer than 30 seconds to react? Ans: 0.0062
c. What is the reaction time such that only 10% of subjects are faster? Ans: 14.88

Ans:
a) For Fund A, P(X< 0) is same as P(Z < (0 – 8)/14) i.e. P(Z < - 0.57) = 0.5 – 0.2157 = 0.2843

For Fund B, P(X< 0) is same as P(Z < (0 – 4)/5) i.e. P(Z < - 0.8) = 0.5 – 0.2881 = 0.2119

b) For Fund A, P(X> 8) is same as P(Z > (8 – 8)/14) i.e. P(Z > 0) = 0.5

For Fund B, P(X> 8) is same as P(Z > (8 – 4)/5) i.e. P(Z > 0.8) = 0.5 – 0.2881 = 0.2119

13. You are considering the risk return profiles of two mutual funds for investments. Fund A promises an
expected return of 8% with standard deviation of 14%. Fund B promises an expected return and standard
deviation of 4% and 5% respectively. Assume that the returns are approximately normally distributed.
a) Which mutual fund will you pick if your objective is to minimize probability of earning a negative
return?
b) Which mutual fund will you pick if your objective is to maximize probability of earning a return above
8%?
Support your answers with probabilities.
Ans: a) Fund B. Since P(X < 0) = .2843 for Fund A and P(X < 0 ) = .2119 for Fund B.
c) Fund A Since P(X > 8) = .5 for Fund A and it is 0.2119 for Fund B

14 Assume that the price of a share of TWA stock is normally distributed with mean 48 and standard
deviation 6. What is the probability that on a randomly chosen day in the period for which our
 assumptions are made, the price of the stock will be more than $60 per share? Less than $60 per share?
More than $40 per share? Between $40 and $50 per share? Ans: 0.0228, 0.9772, 0.9082, 0.5375

15 Models of the pricing of stock options make the assumption of a normal distribution. An analyst
believes that the price of an IBM stock option is a normally distributed random variable with mean
$8.95 and variance 4. The analyst would like to determine a value such that there is a 0.90 probability
that the price of the option will be greater than that value. Find the required value. Ans: 6.39

16 The number of people responding to a mailed information brochure on cruises of the Royal Viking
Line through an agency in San Francisco is approximately normally distributed. The agency found that
10% of the time, over 1,000 people respond immediately after a mailing, and 50% of the time, at least
650 people respond right after the mailing. Find the mean and the standard deviation of the number of
people who respond following a mailing. Ans: 650 and 273.4375

17. The speeds of all cars traveling on a stretch of interstate highway 1-95 are normally distributed with
a mean of 68 miles per hour and a standard deviation of 3 miles. Find the percentage of travelers who
are violating the 65 miles speed limit. Ans: 0.8413

18. The lifetime of a certain kind of battery is a random variable having a normal distribution with a
μ=300 hours and σ 35hours. Find the probability that one of those batteries will have a life time
more than 320 hours. Also find the value above which we can expect to find the best 25% of these
batteries? Ans: 0.2843 and 323.625

19. The ‘Carmate’ automobile batteries have average length of useful life as 48 months. However, the
guarantee stipulated is only 36 months. The company, in order to assure customers about the
quality, also stipulates that if a battery fails in less than 24 months, it will pay a ‘goodwill’
compensation of Rs. 1,000 in addition to the replacement of the battery. Assuming that the s.d. of
the life is 8 months, and that the distribution is normal, find
(i) What percentage of batteries would have to be replaced free of cost? Ans: 0.0668

20. The I.Q. of the MBA graduates of a management Institute is distributed normally with mean 120
and s.d. as 5. The ‘Bright’ consulting company wants to interview only 10 out of the 120 graduates.
What is the minimum I.Q. they should prescribe for a graduate to be called for interview?
Ans: 126.9

24. The average annual amount American households spend for daily transportation is $6312 (Money,
August 2001). Assume that the amount spend is normally distributed.
a. Suppose you learn that 5% of American households spend less than $1000 for daily
transportation. What is the standard deviation of the amount spend?
b. What is the probability that a household spends between $4000 and $6000?
c. What is the amount spent by the 3% of households with the highest daily transportation cost?
 = 6,312

a. z = -1.645 cuts off .05 in the lower tail

So,
1000  6312
1.645 


1000  6312
  3229
1.645

6000  6312
z  .10
b. At 6000, 3229
 4000  6312
z  .72
At 4000, 3229

P(4000 < x < 6000) = P(-.72 < z < -.10) = .4602 - .2358 = .2244

c. z = 1.88 cuts off approximately .03 in the upper tail

x = 6312 + 1.88(3229) = 12,382.52

The households with the highest 3% of expenditures spent more than $12,382.

25. Ward Doering Auto Sales is considering offering a special service contract that will cover the total
cost of any service work required on leased vehicles. From experience, the company manager
estimates that yearly service costs are approximately normally distributed, with a mean of $150 and
a standard deviation of $25.
a. If the company offers the service contract to customers for a yearly charge of $200, What is the
probability that any one customer’s service costs will exceed the contract price of $200?\
b. What is Ward’s expected profit per service contract?

a. At x = 200
200  150
z 2
25 Area = .4772
P(x > 200) = .5 - .4772 = .0228

b. Expected Profit = Expected Revenue - Expected Cost

= 200 - 150 = $50