Quantitative Methods

SEMESTER – 1
Practice Sheet 3
Expected Value & Variance /Standard Deviation

Q1) The Chief Medical Officer of a hospital wants to determine the expected number of patients coming to the Out
Patient Department (OPD) every day. The number of patients coming to the OPD every day is random variable. The
hospital has arrived at the following probability distribution of the number of patients coming to the OPD every day, on
the basis of past experience: (Already solved and explained in class)

Expected number of OPD patients/day= E(X) = Σ xi pi

= (100×0.10)+(110×0.25)+(120×0.30)+(130×0.35)

= 119

Q2) An Analyst estimate that a stock of a company XYZ has following probability distribution of annual return:

(Already solved and explained in class)

Find the expected value (Return) and variance and standard deviation (Risk) associated with the investment in
stock.

Solution:
E.V = 11.4% , σ2 = 8.640 (%)2 , σ = 2.94%

Q3) Daily demand for cell phones is having the following probability distribution:

DD 1 2 3 4 5 6

P .1 .15 .2 .25 .18 .12

Determine the expected daily demand for transistors. Obtain the variance of the demand.

Q4)
Demand (Units) Probability
       0 0.2
1000 0.2
2000 0.3
3000 0.2
4000 0.1

a. Determine the expected daily demand.

b. Assume that the company sells its product at $3.75 per unit. What is the expected daily
revenue?

ANS:

a. 1800
b. $6,750

Q5) The probability distribution for the rate of return on an investment is

Rate of Return
(In Percent) Probability
  9.5 .1
  9.8 .2
10.0 .3
10.2 .3
10.6 .1

a. What is the probability that the rate of return will be at least 10%?
b. What is the expected rate of return?
c. What is the variance of the rate of return?

ANS:

a. 0.7
b. 10.03
c. 0.0801

Q6) The demand for a product varies from month to month. Based on the past year's data, the following probability
distribution shows MNM company's monthly demand.

x f(x)
Unit Demand Probability
       0 0.10
1,000 0.10
 2,000 0.30
3,000 0.40
4,000 0.10

a. Determine the expected number of units demanded per month.

b. Each unit produced costs the company $8.00, and is sold for $10.00. How much will the
company gain or lose in a month if they stock the expected number of units demanded, but sell
2000 units?

ANS:

a. 2300
b. Profit = $1600

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