LESSON 4: Interpreting the Mean and Standard Deviation of Discrete Random

Variable
Readings:
Are you interested in buying lotto tickets? How about making a bet in a roulette wheel or
taking a chance in raffle tickets? Do you want to know how much gain will you have if you will win in
games of chance or how much money will be wasted if you lost on a bet? Are you planning to invest
money in a life insurance company? If you had thought of the following questions this module is for
you.
In this module, you will learn how to compute the probability or the chance of winning and
losing. You will apply the formula for the expected mean to solve real life problems involving mean
and variance of probability distributions. Good luck and happy learning .

PRE-TEST

Before studying this module, take this simple test to determine what you already know about the topic
covered. Please shade the letter of the correct answer.

1. You buy one ₱500.00 raffle ticket for a prize of new car (Toyota
Wigo) valued at ₱675, 000.00. Two thousand tickets are sold. If X
A B C D denotes the net gain from the purchase of a randomly selected
ticket, which of the following tables of values shows the
probability distribution of X?
A. C. x 675,000 -500 x 674,50 -500
P(x) 1 1999 0
2000 2000 P(x) 1 1999
2000 2000
x 674,50 500
x 675,00 500
B. 0 D.
0
P(x) 1 1999
P(x) 1 1999
2000 2000
2000 2000
2. What is the mean or the expected value of item
number 1?
A B C D (Refer to problem number 1)
A. - 162.5 B. -162.25 C. 162.25 D. 162.5

3. One thousand tickets are sold for ₱10.00 each. One ticket will win ₱2,000.00, two
tickets will win ₱1,000.00 each and four tickets will win ₱500.00 each. What
A B C D is the probability of winning
any amount in the purchase of one ticket?
1 2 5 7
A. B. C. D.
1000 1000 1000 1000
 4. A roulette wheel in a fiesta carnival has the numbers 1 through 50. If you bet
₱5.00, you will have a chance to win a kitchen utensil worth ₱200.00. How
A B C D much the organizer will earn if 100 games will be played?
A. ₱2,000.00 B. ₱3,000.00 C. ₱4,000.00 D. ₱5,000.00

5. A life insurance company will sell a ₱500,000.00 five-year term life insurance
policy exclusive for police enforcers for a premium of ₱1,000.00. Find the
A B C D expected value to the company of a single policy if a police enforcer has a
99.95% chance of surviving five years?
A. ₱550.00 B. ₱650.00 C. ₱750.00 D. ₱850.00

Well, what do you think about the pre-test? Do you think you did well? Compare your answers
with those in the Answer Key on the last part of this module to find out.
If all your answers are correct, excellent! This shows that you already know much about the
topic. But you may still study this module to check what you already know. Who knows, you might
learn a few more new things as well.
If you got a low score, it’s ok. This module was made to help you understand important
concepts about mean or expected value of discrete random variable that you can apply in your daily
life. If you study this module carefully, you will learn the answers to all the items in the test and a lot
more! Are you ready? Let’s begin your journey.

Competency

1. Interprets the mean and variance of a discrete random variable.

(M11/12SP-IIIb-3)
2. Solves problems involving mean and variance of probability
distributions. (M11/12SP-IIIb-4)
Objective

At the end of this module, the learner should be able to:

1. understand the concept of mean or expected value of discrete random

variable.
2. solve real life problems involving mean of probability distributions of a
discrete random variable.
3. interpret the mean of a discrete random variable in relation to real life
problems.

Procedure/Learning Experience

Activity

GAME OF CHANCE

Read the conversation below and answer the questions that follow.

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 Our television set is no Oh no! I do understand but if you
Hey Romulo I longer functional and I want to take a chance I have
Ok, so what’s need to buy a new one. here 5 raffle tickets which cost
have a problem.
your problem But the problem is I don’t ₱100.00 each. If you will be
my friend? have enough budget for lucky enough, you’ll get a 32-
that. inch LED Television worth
₱15,000.00.

That’s a good deal and the prize

is so exciting! But I need to
check my budget before buying
a ticket. Thanks for informing
It will be 10 days from now.
me. I’ll just call you when I am
You still have time to
ready to buy. By the way, when Thank you
decide, just call me if you You’re welcome Cardo!
is the raffle date? Romulo!
already have your decision.

Questions:
1. If you are Cardo, would you buy a raffle ticket? Why?
______________________________________________________________
_____________________________________________________________.
2. How would you describe Romulo as a friend?
______________________________________________________________
______________________________________________________________
3. If Cardo decided to buy one ticket, what is the probability that he would win
the prize if 500 tickets were sold? ________ What is the probability that Cardo
will lose the bet?_________

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4. How much money will Cardo gain if he wins the prize? _______. How much
money will be wasted if he will not win the prize? ____________________
5. If you were Cardo, will you buy a ticket? __________________________.

Analysis


This time, you need to reflect on the following questions because it will
help you to understand the concept of the mean and variance of a discrete
random variable. Your honest answer would be a big help for the success of
your journey on this module.
1. How do you find the activity?
2. Were you able to answer all five questions? If yes, what helped you to
answer each question? If no, why were you not able to answer those
questions?
3. Have you experienced a situation where you need to decide to take a
chance? If yes, reflect on the factors which affect your decision.
4. What mathematical concepts or skills will help Cardo make his decision?
How important these concepts/skills for Cardo to decide and choose the best
option?
5. Do games of chance really help individuals with financial problems?
Explain.
Abstraction

Mean or Expected Value and Standard Deviation of a Discrete Random

Variable.

Expected value is exactly what you might think, it means intuitively: the return
you can expect for some kind of action. It informs about what to expect in an
experiment "in the long run", after many trials.
In the study of probability distribution the mean of possible values of a discrete
random variable, given by their respective probabilities, is known as the
expected value, usually represented by E ( x ) or μ X .To compute for the mean of
a discrete random variable, we use the formula
E ( x )=μ x =∑ [ x i ∙ P(x i) ]
where x iis the value of the random variable for outcome i, μ x is the mean of
random variable X, and P( x i)is the probability that the random variable will be
outcome i.

EXAMPLE Senior citizens of a particular barangay organize a Christmas

1 raffle bonanza. One thousand raffle tickets are sold for ₱50.00

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each. Each one has an equal chance of winning. The first prize is a 32-inch
LED TV worth ₱10,000.00, the second prize is an electric oven worth
₱5,000.00 and the third prize is a grocery pack worth ₱2,500.00. Let X
denotes the net gain from the purchase of one ticket.
a. Construct the probability distribution of X.
b. Find the probability of winning any amount in the purchase of one ticket.
c. Find the expected value of X, then interpret.

Solution:
a. If a ticket is selected as the first prize winner, the net gain to the purchaser
is ₱10,000.00 less the ₱50.00 that was paid for the ticket, hence x 1 = 10,000 –
50 = 9950. There is one such ticket, so the probability of gaining 9950 is one
1
out of one thousand tickets or which is equal to 0.001. If it is selected as
1000
the second prize winner, the net gain to the purchaser is ₱5,000.00 less the
1
₱50.00, hence x 2 = 5,000 – 50 = 4950 with a probability of or 0.001. If it
1000
is selected as the third prize winner, the net gain to the purchaser is
₱2,500.00 less the ₱50.00, hence x 3 = 2,500 – 50 = 2450 with a probability of
1
or 0.001. But if the ticket was not selected to win the prize, the purchaser
1000
lost ₱50.00 that was paid for the ticket, hence x 4 = – 50 with a probability of
997
997 out of 1000 tickets or which is equal to 0.997.
1000

Below is the probability distribution:

xi 9950 4950 2450 -50
P( x i) 0.001 0.001 0.001 0.997

b. If we let W denote the event that a ticket is selected to win one of the
prizes. Using the table
The probability of winning the first prize is 0.001.
The probability of winning the second prize is 0.001.
The probability of winning the third prize is 0.001.

Hence P(W ) = 0.001 + 0.001 + 0.001 = 0.003

c. Using the formula of expected value or mean.

E ( x )=9950 ( 0.001 ) +4950 ( 0.001 ) +2450 ( 0.001 ) +(−50)( 0.997)
E ( x )=−32.50

The negative value means one loses money on the average. In particular, if
someone were to buy tickets repeatedly, and although he would win now and

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then, on average he would lose thirty two pesos and fifty cents per ticket
purchased.

You may now go back to the problem of Cardo and apply what you have
learned from example 1.

To answer item number 3: If Cardo decided to buy one ticket, what is the
probability that he would win the prize if 500 tickets were sold? What is the
probability that Cardo will lose the bet?

Solution:
1
You need to compute for the probability of the two events. Cardo will have
500
499
or 0.002 chance to win the prize and or 0.998 chance to lose it. It is also
500
clear that he will gain ₱15,000.00 less ₱100.00 or ₱14,900.00 if he wins the
prize and his ₱100.00 will be wasted if he will lose the prize.
The concept of expected value is also applicable to the insurance industry, as
illustrated by the example below.

EXAMPLE A life insurance company will sell a ₱250,000.00 one-year

2 term life insurance policy for members of armed forces of the
Philippines for a premium of ₱200.00. Find the expected
value to the company of a single policy if a member of the armed forces police
has a 99% chance of surviving one year?

Solution:
Let X denotes the net gain to the company from the sale of one policy. There
are two possibilities: the insured person lives the whole year or the injured
person dies before the year is finished. Applying the “income minus expenses”
principle, in the first case the value of X = 200 – 0; in the latter case it is 200 –
250,000 = - 249,800. Since the probability in the first case is 99.98% or
0.9998 and in the latter case is 1 – 0.9998 = 0.0002, the probability
distribution for X is:
x 200 -249,800
P( x ) 0.9998 0.0002
Therefore
E ( X ) =∑ xP ( x ) =200 ( 0.9998 )+ (−249,800 ) ( 0.0002 )

E ( x )=¿150

Interpretation:

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Sometimes the company may lose a large amount of money on a policy, but
typically gains ₱200.00, which by the computation of E(X) gives a net of
₱150.00 on the average per policy sold.

Application
LET’S PLAY A GAME
Use the formula you have learned to solve the following real life problems
(games of chance) involving mean and variance of a discrete random variable.
Use the back of this page or a separate sheet of paper for your computations,
use of calculator would be a help. Enjoy and happy working .
Game of Chance 1. (Raffle Tickets)
Two thousand tickets are sold for ₱20.00 each. One ticket will win
₱10,000.00, two tickets will win ₱5,000.00 each and three tickets will win
₱1,000.00 each. Let X denotes the net gain from the purchase of a randomly
selected ticket.
a. Construct the probability distribution of X.
b. Find the probability of winning any amount in the purchase of one ticket.
c. Find the expected value of X, then interpret.

Game of Chance 2. (A roulette wheel)

A roulette wheel in a fiesta carnival has the numbers 1 through 30. If you bet
₱5.00 you will have a chance to win a prepaid load worth ₱100.00. Find the
expectation if you play a bet.
Game of Chance 3. (Lottery)
A lotto works by picking 6 numbers from 1- 42 (Combinations of numbers from
1-42 taken 6 at a time produce 5,245,786 number combinations). A ticket
costs ₱24.00 to play the lottery. If you win today, you would win 5 million
pesos after taxes. If you play the lottery today, what would be your expected
winnings or losses?
Take It or Leave It 4. (Body Parts Insurance Investment)

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An insurance company will sell a ₱500,000.00 one-year term legs insurance
policy for ramp models for a premium of ₱500.00. Find the expected value to
the company of a single policy if a model has a 99.96% chance of being
uninjured in one year?

Compare your answers with those found in the Answer Key on the last part of
this module. Did you get all items correct? Great! If you did, you learned the
lesson well. If you were not able to get the correct answer, review your
computations.

Reflection

Please share your thoughts here.

POST - TEST

You are now ready to take another chance to know where you are so far. With
your effort and determination I believe you can do it once again. Good Luck.

Direction: Solve the following real life problems.

1. One thousand tickets are sold for ₱50.00 each. One ticket will
A B C D win ₱10,000.00, two tickets will win ₱5,000.00 each and three
tickets will win ₱1,000.00 each. If X denotes the net gain from the
purchase of a randomly selected ticket, which of the following
tables of values shows the probability distribution of X?
x 10,00 5,000 1,000 -50
A. 0
P(x) 1 2 3 994
1000 1000 1000 1000
x 10,00 5,000 1,000 -50
B.
0
P(x) 1 2 3 1
999 998 997 999

x 9,950 4,950 950 -50

C. P(x) 1 2 3 994
1000 1000 1000 1000

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 x 9.950 4,950 1,000 -50
P(x) 1 2 3 1 D.
999 998 997 999

2. What is the mean or the expected value of item number 1?

A B C D (Refer to problem number 1)
A. - 25 B. - 27 C. 25 D. 27

3. You buy three ₱1,000.00 raffle tickets for a prize of a new 20-
A B C D passenger Sarao jeepney valued at ₱800, 000.00. Two thousand
tickets are sold. What is the probability of winning the prize in the
purchase of three tickets?
1 2 3 4
A. B. C. D.
2000 2000 2000 2000

4. A roulette wheel in an amusement park has the numbers 1

A B C D through 60. If you bet ₱100.00 you will have a chance to win a
cellular phone worth 5,000.00. How much the organizer will earn
if 100 games will be played?
A. ₱50,000.00 C. ₱150,000.00
B. ₱100, 000.00 D. ₱200,000.00

5. A life insurance company will sell a 1 million three-year term

A B life
C D
insurance policy exclusive in a particular risk group for a
premium of ₱2,000.00. Find the expected value to the company
of a single policy if a person in this risk group has a 99.95%
chance of surviving three years?
A. ₱1,500.00 C. ₱1,800.00
B. ₱1,690.00 D. ₱1,950.00

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