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Faculty of Management Studies, University of Delhi

MBA (PT) I yr, Semester I, 2016-2017 8102: Quantitative Methods for Management
Assignment – III -- Probability
Submitted By:
Shakher saini , Roll no: S070 , South Campus

Exercise 1 : A survey conducted by the Segal Company of New York found that in a sample of 189 large
companies, 40 offered stock options to their board members as part of their non-cash compensation
packages. For small- to mid-sized companies, 43 of the 180 surveyed indicated that they offer stock options as
part of their noncash compensation packages to their board members. If a company is selected at random,
(a) what is the probability that the company is small to mid-sized or offered stock options to their board
members?
(b) is a large company, what is the probability that it offered stock options to their board members?
(c) offered stock options to their board member, what is the probability that it is a large company?
(d) Is the size of the company statistically independent of whether stock options are offered to their board
members and why?
Solution : From the given data first we have to make the contingency table as shown below :

Company Size
  Contingency Table Large Size Small-Mid Total
P(S) Stock Option Yes 40 43 83
P( Ś) Stock Option No 149 137 286
189 180 369
  P(L) P( Ĺ)  
Solution:
(a) Probability that the company is small to mid-sized or offered stock options to their board members is

P(S ∪ Ĺ) = P(S) + P( Ĺ) – P(S ∩ Ĺ) = (83+180-43)/369 = 0.5962

(b) If a company selected at random, is a large company, the probability that it offered stock options to
their board members is

P(S | L) = P(S ∩ L)/P(L) = (40/369) / (189/369) = 40/189 = 0.211

(c) If a company selected at random , offered stock options to their board member, the probability that
it is a large company is

P(L | S) = P(L ∩ S)/P(S) = (40/369) / (83/369) = 40/83 = 0.481

(d) There are two ways to define statistical independent events.

1) P(S | L) = P(S) but from the given values 0.211 ≠ 0.224

2) P(S ∩ L) = P(S)P(L) but from the given values .108 ≠ 0.114
So the size of the company is not statistically independent of whether stock options are offered to their
board members.
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Exercise 2 : The XYZ Corporation has offers on two contracts A and B. Suppose the proposal team made the
following subjective probability assessments: the chance of winning contract A is 40%, the chance of winning
contract B is 20%, the chance of winning contract A or contract B is 60%, the chance of winning both contracts
is 10%.

(a) Explain why the above set of probability assignments is inconsistent with the axioms of probability.
(b) What must P(B) equal such that it and the set of other assigned probabilities specified above are consistent
with the axioms of probability?

Solution: From the given data we can find out the following mentioned below :
The chance of winning contract A is 40% so P(A) = 0.4,
The chance of winning contract B is 20%, so P(B) = 0.2
The chance of winning contract A or contract B is 60%, so P(A ∪ B) = 0.6
The chance of winning both contracts is 10%, so P(A ∩ B) = 0.1

(a) In order to be consistent the set of probability assignments must be consistent with the Kolmogorov’s
axioms and the theorems of probability, which arises from the three axioms.

The theorem which we will validate in this case from the given data is
P(A ∪ B) = P(A) + P(B) − P(A ∩ B) should holds true

But from the given data

0.6 ≠ 0.4 + 0.2 – 0.1 , 0.6 ≠ 0.5
So the the set of probability assignments given is not consistent with the axioms of probability.

(b) For the set of other assigned probabilities to be consistent with the axioms of probability,
P(A ∪ B) = P(A) + P(B) − P(A ∩ B) , 0.6 = 0.4 + P(B) – 0.1 , So P(B) should be = 0.3 or 30%.