Bachelor of Commerce

Business Statistics I

Module BBFH103
Author: Amos Tendai Munzara
Master of Business Administration (ZOU)
Bachelor of Science in Mathematics and Statistics (ZOU)
Diploma in Education (Gweru Teachers' College)

Content Reviewer: Kudzanayi Ruvharo

Master of Science in Statistics (UZ)
Bachelor of Science Special Honours in Statistics (UZ)
Bachelor of Science in Mathematics and Statistics (ZOU)
Diploma in Education (Gweru Teachers' College)

Editor: Antony Chikutsa

Master of Science in Population Studies (UZ)
Bachelor of Science in Psychology Honours (UZ)
Published by: Zimbabwe Open University

P.O. Box MP1119

Mount Pleasant

Harare, ZIMBABWE

The Zimbabwe Open University is a distance teaching and open

learning institution.

Year: August 2013

Cover design: B. Pillay

ISBN: 978-1-77938-724-0

Printers : ZOU Press

Typeset in Times New Roman, 12 point on auto leading

© Zimbabwe Open University. All rights reserved. No part of this

publication may be reproduced, stored in a retrieval system, or transmitted,
in any form or by any means, electronic, mechanical, photocopying,
recording or otherwise, without the prior permission of the Zimbabwe Open
University.
Published by: The Zimbabwe Open University

P.O. Box MP1119

Mount Pleasant

Harare, ZIMBABWE

The Zimbabwe Open University is a distance teaching and open

learning institution.

Year: July, 2013

Cover design: B. Pillay

Printed by: ZOU Press

Typeset in Garamond, 12 point on auto leading

© Zimbabwe Open University. All rights reserved. No part of this publication

may be reproduced, stored in a retrieval system, or transmitted, in any form or by
any means, electronic, mechanical, photocopying, recording or otherwise, without the
prior permission of the Zimbabwe Open University.
 To the student
The demand for skills and knowledge
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now also exploiting e-learning
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Since attainment of independence in
1980, the Zimbabwe Government has
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tertiary level, resulting in the
establishment of the Zimbabwe Open
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Best wishes and success in your studies.
_____________________
Prof. Primrose Kurasha
Vice Chancellor
 The Six Hour Tutorial Session At
The Zimbabwe Open University
A s you embark on your studies with the Zimbabwe
Open University (ZOU) by open and distance
learning, we need to advise you so that you can make
the best use of the learning materials, your time and
the tutors who are based at your regional office.
The most important point that you need to note is
that in distance education and open learning, there
are no lectures like those found in conventional
universities. Instead, you have learning packages that
may comprise written modules, tapes, CDs, DVDs
and other referral materials for extra reading. All these
including radio, television, telephone, fax and email
can be used to deliver learning to you. As such, at
the ZOU, we do not expect the tutor to lecture you
when you meet him/her. We believe that that task is
accomplished by the learning package that you receive
at registration. What then is the purpose of the six
hour tutorial for each course on offer?
At the ZOU, as at any other distance and open
learning university, you the student are at the centre
of learning. After you receive the learning package,
you study the tutorial letter and other guiding
documents before using the learning materials. During
the study, it is obvious that you will come across
concepts/ideas that may not be that easy to understand
or that are not so clearly explained. You may also
come across issues that you do not agree with, that
actually conflict with the practice that you are familiar
with. In your discussion groups, your friends can bring
ideas that are totally different from yours and
arguments may begin. You may also find that an idea
is not clearly explained and you remain with more
questions than answers. You need someone to help
you in such matters.
This is where the six hour tutorial comes in. For it
to work, you need to know that:
· There is insufficient time for the tutor to
lecture you
· Any ideas that you discuss in the tutorial,
originate from your experience as you
work on the materials. All the issues
raised above are a good source of topics
(as they pertain to your learning) for
discussion during the tutorial
· The answers come from you while the
tutor’s task is to confirm, spur further
discussion, clarify, explain, give
additional information, guide the
discussion and help you put together full
answers for each question that you bring
· You must prepare for the tutorial by
bringing all the questions and answers
that you have found out on the topics to
the discussion
· For the tutor to help you effectively, give
him/her the topics beforehand so that in
cases where information has to be
gathered, there is sufficient time to do
so. If the questions can get to the tutor
at least two weeks before the tutorial,
that will create enough time for thorough
preparation.
In the tutorial, you are expected and required to
take part all the time through contributing in every
way possible. You can give your views, even if
they are wrong, (many students may hold the same
wrong views and the discussion will help correct
 The Six Hour Tutorial Session At The Zimbabwe Open University

the errors), they still help you learn the correct thing
as much as the correct ideas. You also need to be
open-minded, frank, inquisitive and should leave no
stone unturned as you analyze ideas and seek
clarification on any issues. It has been found that
those who take part in tutorials actively, do better in
assignments and examinations because their ideas are
streamlined. Taking part properly means that you
prepare for the tutorial beforehand by putting together
relevant questions and their possible answers and
those areas that cause you confusion.
Only in cases where the information being discussed
is not found in the learning package can the tutor
provide extra learning materials, but this should not
be the dominant feature of the six hour tutorial. As
stated, it should be rare because the information
needed for the course is found in the learning package
together with the sources to which you are referred.
Fully-fledged lectures can, therefore, be misleading
as the tutor may dwell on matters irrelevant to the
ZOU course.
Distance education, by its nature, keeps the tutor
and student separate. By introducing the six hour
tutorial, ZOU hopes to help you come in touch with
the physical being, who marks your assignments,
assesses them, guides you on preparing for writing
examinations and assignments and who runs your
general academic affairs. This helps you to settle
down in your course having been advised on how
to go about your learning. Personal human contact
is, therefore, upheld by the ZOU.

The six hour tutorials should be so structured that the

tasks for each session are very clear. Work for each
session, as much as possible, follows the structure given
below.

Session I (Two Hours)

Session I should be held at the beginning of the semester. The main aim
of this session is to guide you, the student, on how you are going to
approach the course. During the session, you will be given the overview
of the course, how to tackle the assignments, how to organize the logistics
of the course and formation of study groups that you will belong to. It is
also during this session that you will be advised on how to use your
learning materials effectively.
 The Six Hour Tutorial Session At The Zimbabwe Open University

Session II (Two Hours)

This session comes in the middle of the semester to respond to the
challenges, queries, experiences, uncertainties, and ideas that you are
facing as you go through the course. In this session, difficult areas in the
module are explained through the combined effort of the students and
the tutor. It should also give direction and feedback where you have not
done well in the first assignment as well as reinforce those areas where
performance in the first assignment is good.

Session III (Two Hours)

The final session, Session III, comes towards the end of the semester.
In this session, you polish up any areas that you still need clarification on.
Your tutor gives you feedback on the assignments so that you can use
the experience for preparation for the end of semester examination.

Note that in all the three sessions, you identify the areas
that your tutor should give help. You also take a very
important part in finding answers to the problems posed.
You are the most important part of the solutions to your
learning challenges.

Conclusion for this course, but also to prepare yourself to

In conclusion, we should be very clear that six
hours is too little for lectures and it is not
necessary, in view of the provision of fully self-
contained learning materials in the package, to
turn the little time into lectures. We, therefore,
urge you not only to attend the six hour tutorials
contribute in the best way possible so that you
can maximally benefit from it. We also urge you
to avoid forcing the tutor to lecture you.
BEST WISHES IN YOUR STUDIES.
ZOU
Table of Contents
Module Overview

Unit 1 .............................................................................................................................................. 1
Basic Concepts of Statistics .......................................................................................................... 1
1.1 Introduction ................................................................................................................................... 1
1.3 What is Statistics? .......................................................................................................................... 1
1.3.1 Descriptive statistics................................................................................................................ 1
1.3.2 Inferential statistics ................................................................................................................. 2
Activity 1.1...................................................................................................................................... 2
1.4 Variables ....................................................................................................................................... 2
Activity 1.2...................................................................................................................................... 2
1.4.1 Discrete and continuous random variables ............................................................................... 3
Activity 1.3...................................................................................................................................... 3
1.5 Measurement Scales ...................................................................................................................... 3
Activity 1.4...................................................................................................................................... 5
1.6 Sources of Data.............................................................................................................................. 5
1.6.1 Primary data ............................................................................................................................ 5
1.6.2 Secondary data ........................................................................................................................ 5
Activity 1.5 ......................................................................................................................................... 5
1.7 Types of Data ................................................................................................................................ 5
1.7.1 Qualitative and quantitative data.............................................................................................. 6
Activity 1.6...................................................................................................................................... 7
1.7.2 Hard and soft data ................................................................................................................... 7
1.7.3 Cross-section data and time series data .................................................................................... 7
Activity 1.7...................................................................................................................................... 7
1.8 Summary ....................................................................................................................................... 8
References ........................................................................................................................................... 9
Unit 2 ............................................................................................................................................ 10
Sampling Methods ...................................................................................................................... 10

iii
 2.1 Introduction ................................................................................................................................. 10
2.2 Unit Objectives ............................................................................................................................ 10
2.3 Population and Sample................................................................................................................. 10
2.3.1 Why a sample survey and not a population census? ............................................................... 11
Activity 2.1.................................................................................................................................... 11
2.4 Sampling Methods ....................................................................................................................... 11
2.4.1 Simple random sampling ....................................................................................................... 12
Activity 2.2.................................................................................................................................... 12
2.4.2 Stratified random sampling.................................................................................................... 13
Activity 2.3.................................................................................................................................... 13
2.4.3 Systematic random sampling ................................................................................................. 14
Activity 2.4.................................................................................................................................... 14
2.4.4 Cluster sampling ................................................................................................................... 14
Activity 2.5.................................................................................................................................... 15
2.5 Other Sampling Methods ............................................................................................................. 15
2.5.1 Quota sampling ..................................................................................................................... 15
2.5.2 Judgemental sampling ........................................................................................................... 16
2.5.3 Convenience sampling .......................................................................................................... 16
2.5.4 Self-selection ........................................................................................................................ 16
Activity 2.6.................................................................................................................................... 16
2.7 Summary ..................................................................................................................................... 16
References ......................................................................................................................................... 17
Unit 3 ............................................................................................................................................ 18
Data Collection Methods and Instruments ............................................................................... 18
3.1 Introduction ................................................................................................................................. 18
3.2 Unit Objectives ............................................................................................................................ 18
3.3 Data Collection Methods.............................................................................................................. 18
3.3.1 Existing records .................................................................................................................... 18
3.3.2 Direct observation ................................................................................................................. 19
3.3.3 Personal interview ................................................................................................................. 19
3.3.4 Telephone interviewing ......................................................................................................... 19
3.3.5 Postal interview..................................................................................................................... 19

iv
 Activity 3.1.................................................................................................................................... 20
3.4 Data Collection Instruments ......................................................................................................... 20
3.4.1 Attributes of a good questionnaire ......................................................................................... 20
Activity 3.2.................................................................................................................................... 21
3.5 Summary ..................................................................................................................................... 21
References ......................................................................................................................................... 22
Unit 4 ............................................................................................................................................ 23
Methods of Displaying Data ....................................................................................................... 23
4.1 Introduction ................................................................................................................................. 23
4.2 Unit Objectives ............................................................................................................................ 23
4.3 Displaying Qualitative Data ......................................................................................................... 23
4.3.1 Pictographs ........................................................................................................................... 23

4.3.2 Pie charts .............................................................................................................................. 24

4.3.3 Bar charts .............................................................................................................................. 26
Activity 4.2.................................................................................................................................... 28
4.4 Displaying Quantitative Data ....................................................................................................... 28
4.4.1 Histogram of equal class width .............................................................................................. 29
4.4.2 Histogram with unequal class width ...................................................................................... 30
4.4.3 Frequency polygon ................................................................................................................ 31
Activity 4.3.................................................................................................................................... 32
4.4.4 Cumulative frequency graphs ................................................................................................ 32
Activity 4.4.................................................................................................................................... 35
4.4.5 Stem and leaf display ............................................................................................................ 35
Activity 4.5.................................................................................................................................... 36
4.5 Shape of the Distribution ............................................................................................................. 37
4.5.1 Skewness .............................................................................................................................. 37
4.5.2 Kurtosis ................................................................................................................................ 37
4.6 Summary ..................................................................................................................................... 38
References ......................................................................................................................................... 39
Unit 5 ............................................................................................................................................ 40
Measures for Describing Ungrouped Data ............................................................................... 40

v
 5.1 Introduction ................................................................................................................................. 40
5.3 Measures of Location................................................................................................................... 40
5.3.1 Mode for ungrouped data ...................................................................................................... 40
Activity 5.1.................................................................................................................................... 41
5.3.2 Median for ungrouped data.................................................................................................... 41
.................................................................................................................................... 43
Activity 5.2
....................................................................................................... 43
5.3.3 Mean for ungrouped data
.................................................................................................................................... 44
Activity 5.3
........................................................................ 44
5.3.4 Choosing the appropriate measure of location
.................................................................................................................................... 46
Activity 5.4
.................................................................................................................... 46
5.4 Measures of Position
.................................................................................................................................... 47
Activity 5.5
.................................................................................................................................... 48
Activity 5.6
5.4.3 Box-and-Whisker Plot ........................................................................................................... 48
Activity 5.7.................................................................................................................................... 49
5.6 Summary ..................................................................................................................................... 53
References ......................................................................................................................................... 54
Unit 6 ............................................................................................................................................ 55
Measures of Describing Grouped Data ..................................................................................... 55
6.1 Introduction ................................................................................................................................. 55
6.2 Unit Objectives ............................................................................................................................ 55
6.3 Frequency Distribution ................................................................................................................ 55
6.3.1 Advantages of grouping data ................................................................................................. 56
6.3.2 Disadvantages of grouping data ............................................................................................. 56
Activity 6.1.................................................................................................................................... 57

vi
 6.4 Construction of a Grouped Frequency Distribution....................................................................... 57
Activity 6.2.................................................................................................................................... 59
6.5 Measures of Location for Grouped Data ....................................................................................... 59
6.5.1 Mean of grouped data ............................................................................................................ 59
Activity 6.3.................................................................................................................................... 59
Activity 6.4.................................................................................................................................... 61
6.5.2 Median of grouped data ......................................................................................................... 62
6.5.3 Mode of grouped data ........................................................................................................... 64
Activity 6.6.................................................................................................................................... 66
6.6 Measures of Position for Grouped Data ........................................................................................ 66
6.6.1 Quartiles for grouped data ..................................................................................................... 66
Activity 6.7.................................................................................................................................... 67
6.6.2 Percentiles for grouped data .................................................................................................. 67
Activity 6.8.................................................................................................................................... 68
6.7 Measures of Dispersion for Grouped Data .................................................................................... 69
6.7.1 Range for grouped data ......................................................................................................... 69
6.7.2 Interquartile range for grouped data ....................................................................................... 69
6.7.3 Variance and standard deviation of grouped data ................................................................... 69
.................................................................................................................................... 72
Activity 6.9
6.8 Summary ..................................................................................................................................... 72
References ......................................................................................................................................... 73
Unit 7 ............................................................................................................................................ 74
Introduction to Probability ........................................................................................................ 74
7.1 Introduction ................................................................................................................................. 74
7.2 Unit Objectives ............................................................................................................................ 74
7.3 What is Probability?..................................................................................................................... 74
7.4 Set Notation ................................................................................................................................. 75
7.4.1 Elements of a set ................................................................................................................... 75
7.4.2 Universal set ......................................................................................................................... 75
7.4.3 Subset ................................................................................................................................... 75
7.4.4 Complement of a set.............................................................................................................. 75

vii
 7.4.5 Union and intersection of sets ................................................................................................ 76
Activity 7.1.................................................................................................................................... 76
7.5 Basic Definitions of Probability Terms......................................................................................... 76
7.5.1 Random experiment .............................................................................................................. 77
7.5.2 Sample space ........................................................................................................................ 77
Activity 7.2.................................................................................................................................... 78
7.5.3 Event .................................................................................................................................... 78
7.5.4 Mutually exclusive events ..................................................................................................... 78
7.5.5 Non-mutually exclusive events .............................................................................................. 79
7.5.6 Independent events ................................................................................................................ 79
7.6 Approaches to Probability ............................................................................................................ 79
7.6.1 Judgmental Approach ............................................................................................................ 79
7.6.3 Theoretical Approach ............................................................................................................ 80
Activity 7.3.................................................................................................................................... 83
7.7 Basic Rules of Probability ............................................................................................................ 83
7.7.1 Range of values..................................................................................................................... 83
7.7.2 Sum of probability ................................................................................................................ 83
7.7.3 Rule of complementary events............................................................................................... 83
7.7.4 Addition rule ......................................................................................................................... 84
7.7.5 Product rule for independent events ....................................................................................... 86

Activity 7.5.................................................................................................................................... 88

7.8 Conditional Probability ................................................................................................................ 88

Activity 7.6.................................................................................................................................... 89

7.9 Use of Contingency Tables to Evaluate Probabilities .................................................................... 89

References ......................................................................................................................................... 92

Unit 8 ............................................................................................................................................ 93

Discrete Probability Distributions ............................................................................................. 93

8.1 Introduction ................................................................................................................................. 93

8.2 Unit Objectives ............................................................................................................................ 93

viii
 8.3 Probability Distribution................................................................................................................ 93

Activity 8.1.................................................................................................................................... 94

Activity 8.2.................................................................................................................................... 95
8.4 Probability Bar Graph .................................................................................................................. 96
Activity 8.3.................................................................................................................................... 96
8.5 Cumulative Probabilities .............................................................................................................. 96
Activity 8.4.................................................................................................................................... 98
8.6 Expectation of a Random Variable ............................................................................................... 98
Activity 8.5.................................................................................................................................... 99
8.6.1 Mean of a function of a random variable ............................................................................... 99
Activity 8.6.................................................................................................................................. 101
8.7 Variance and Standard Deviation of a Random Variable ............................................................ 101

Activity 8.7.................................................................................................................................. 103

8.8 Binomial Probability Distribution .............................................................................................. 103

Activity 8.8.................................................................................................................................. 106

8.10 Poisson Probability Distribution ............................................................................................... 106

Activity 8.9.................................................................................................................................. 108

8.11 Summary ................................................................................................................................. 109

References ....................................................................................................................................... 110
Unit 9 .......................................................................................................................................... 111
Statistics List of Formulae ....................................................................................................... 111
9.1 Sampling Methods ..................................................................................................................... 111
9.2 Methods of Displaying Data....................................................................................................... 111

9.3 Measures for Describing Ungrouped Data .................................................................................. 111

9.3.1 Measures of Central Tendency ............................................................................................ 111

........................................................................................................... 111
9.3.2 Measures of position
........................................................................................................ 112
9.3.3 Measures of dispersion

ix
 ...................................................................................... 112
9.4 Measures for Describing Grouped Data

9.4.1 Measures of Central Tendency ............................................................................................ 112

9.4.2 Measures of Position ........................................................................................................... 113
....................................................................................................... 113
9.4.3 Measures of Dispersion
......................................................................................................... 113
9.5 Introduction to Probability

9.6 Discrete Probability Distributions .............................................................................................. 114

Appendices................................................................................................................................. 115

x
Module Overview
The primary objective of this module is to introduce some basic statistical concepts that can
easily be understood and applied by business students. It is hoped that an understanding of these
concepts will aid decision making at the workplace.

The module has eight units which must be studied in the order in which they are presented. In
Unit 1 we define Statistics and introduce the concept of a variable. We also deals with types of
data. Unit 2 is about sampling methods while in Unit 3 we discuss data collection methods and
instruments. The various methods of representing data are illustrated in Unit 4. In Unit 5 and
Unit 6 you will learn about different measures of describing data. In Unit 7 we introduce you to
probability and in Unit 8 we deal with some special probability distributions. Unit 9 comprises of
a list of statistics formulae.

Each unit begins with some learning objectives to guide you the student on examinable areas.
Statistics is a ‘doing’ subject. You are, therefore, expected to actively follow through the worked
examples before attempting activity questions at the end of each section. You are also expected
to have working knowledge of a scientific calculator and statistical tables. Statistical tables are
provided in the appendices.

We wish you well in your studies.

xi
BLANK PAGE
 Unit 1

Basic Concepts of Statistics

1.1 Introduction
In this unit we explain what Statistics is all about. You will learn about the different sources and
types of data. You will be introduced to the concept of a variable and look at the classification of
variables.

1.2 Unit Objectives

By the end of the unit, you should be able to:

• explain what statistics is all about

• identify the two main branches of statistics
• define a variable and a random variable
• classify random variables as being discrete or continuous; qualitative or quantitative
• classify data as being qualitative or quantitative; primary or secondary; raw or aggregate
• describe the different types of measurement scales

1.3 What is Statistics?

Statistics is a science which involves the collection and interpretation of data for decision making
purposes. The term ‘Statistics’ starting with a capital letter ‘S’ refers to Statistics as a field of
study, while ‘statistics’ starting with small letter ‘s’ refers to the numeric measures that are
calculated or taken from samples.

There are two main branches of Statistics which are Descriptive Statistics and Inferential
Statistics.

1.3.1 Descriptive statistics

Descriptive Statistics is the branch of Statistics which deals with the collection, presentation and
characterisation of data. The presentation and characterisation of data is aimed at adequately
describing the data by making the salient features of the data standout clearly.

1
1.3.2 Inferential statistics
Inferential Statistics is a branch of Statistics that uses sample data to draw conclusions about the
underlying populations. It has two major focal areas which are estimation and hypothesis testing.
Estimation involves the use of sample measurements to represent the true population
measurements, while hypothesis testing is about ascertaining whether claims made concerning
population parameters are true or false.

Often times, data are collected on a representative part of a targeted population because of
limited financial resources and time considerations. However, what is found pertaining to a part
of a population should be generalised to the whole population. The science of generalising from
a part (random sample) to the whole (population) is known as statistical inference.

Activity 1.1
1. Why is it important for a manager to study Business Statistics?
2. Distinguish between the two main branches of Statistics.

1.4 Variables
Let X be the number of passengers in a commuter omnibus. Assuming the omnibus has a
carrying capacity of 18 passengers, the number of passengers in the omnibus at different times
varies among points 0 to 18. We say the quantity X is a variable.

A variable is a quantity that assumes different values in a particular discussion or study.

As you will realise, the number of passengers in the omnibus at any given time is not certain.
You cannot certainly say there would be 6 passengers in the omnibus at a particular time; rather
the number of passengers depends on chance. We say the number of passengers X is a random
variable.

A random variable is an uncertain quantity whose values arise by chance. The values that the
variable will assume are not known before they are measured.

Upper case letters (for example X, Y) are usually used to denote a random variable while their
lower case counterparts (x, y) are used to represent an observed value of the variable. A small
numerical suffix is added to distinguish different observations of the variable, that is, x1 would be
the first observed value, x2 is the second and so on. In general, xi represents the i th observation.

Activity 1.2
Let Z be number of days in a month. Is Z a variable? If it is a variable, is it random or
not? Justify your answer.

2
1.4.1 Discrete and continuous random variables
Random variables can be classified as discrete or continuous. Refer to the variable X which
represents the number of people in a commuter omnibus. Is it possible that X can assume
fractional values? For example, can the number of passengers be 6.5 or 7.82? The answer is no.
Obviously, it does not make sense to talk of a fraction of a person. The number of passengers
‘jumbs’ from one whole number to the next without being able to have any value between them.
A variable which behaves in this manner is said to be discrete.

A discrete random variable is a variable that can assume only fixed and specific values which
are usually whole numbers. The values of a discrete random variable can be negative whole
numbers as well. For example, the amount of money earned on a loan investment may be -$500,
which shows a loss of $500.

On the other hand, a continuous random variable can assume literally any value in an interval
of numbers. The values of a continuous random variable move continuously from one possible
value to another without having to ‘jumb’. Let Y be the weight of passengers in a commuter
omnibus. If the lowest and highest weights of passengers are 35kg and 95kg respectively, then
the weights of the rest of passengers could be any value (including fractional values) between
these two extremes. Therefore Y is a continuous random variable.

While a discrete random variable can assume at most a countable number of values, for a
continuous random variable the possible values are uncountably infinite.

Activity 1.3
1. Give three examples of a continuous random variable.
2. Classify the following random variables as being discrete or continuous:
a) number of people in a church
b) household income
c) average daily temperatures
d) distance travelled to school by a group of students
e) number of phone calls received per day

1.5 Measurement Scales

Basically we have four measurement scales which are the nominal scale, the ordinal scale, the
interval scale and the ratio scale giving rise to nominal data, ordinal data, interval data and ratio
data respectively. We have deliberately listed the scales in this particular order from the weakest
scale to the strongest scale.

3
a) Nominal data
Nominal data consists solely of names or labels. The term ‘nominal’ stands for ‘name’ or
category. The labels can be numeric, for example, bank account numbers. The labels can also be
non-numeric such as gender, blood groups or marital status. Non- numeric labels can be assigned
numbers, for example we can denote marital status categories as: never married = 1, married = 2,
divorced = 3 and so on. However, these numbers are assigned arbitrarily and it would not make
sense to do arithmetic operations on them. Clearly, you can see that the nominal scale of
measurement is used for qualitative rather than quantitative data.

b) Ordinal data
Just like nominal data, ordinal data consists of labels but the labels depict order of data elements
in terms of their relative size or quality. Examples of ordinal data are:
• finishing positions in a race (first, second, third)
• degree classes (first class, upper second class, lower second class, third class)
• social classes (high class, middle class, low class)

The data is ranked but the magnitude of differences between ranks is not known. For example, if
John came first in a race and Peter was second, we can certainly conclude than John is a better
athlete compared to Peter but we cannot tell how much ‘better’.

c) Interval data
Interval data is numeric data which consists of intervals that are measured in fixed units so that
differences between values have meaning. Interval data are measured on a scale that does not
have a meaningful zero to anchor it; the zero is assigned arbitrarily and this makes it impossible
to take ratios of two measurements. Some examples of interval data are:

• Temperature measured in degrees Fahrenheit (0F) - a temperature of 500F is not twice as

hot as a temperature of 250F, therefore we cannot take the ratio of these two
measurements. The difference between 100F and 200F is the same as the difference
between 400F and 500F. However a temperature of 00F does not imply absence of heat.
• Time of day- if the time is 0:00am, this does not imply absence of any time. The duration
of time between 0:00am and 6:00am (6 hours) is twice the duration of time between
0:00am and 3:00am (3 hours).

d) Ratio data
Ratio data have all the characteristics of interval data, but in addition, have a meaningful zero
and the ratios of measurements are consistent irrespective of units of measurement. Some
examples of ratio data are:

• weight
• volume
• distance

4
Activity 1.4
1. What is the major difference between ratio data and interval data?
2. Identify the measurement scale which is appropriate for each of the following data:
a) prices of residential stands
b) star ratings of hotels
c) house numbers in a street
d) daily sales of a vegetable vendor
e) shoes sizes

1.6 Sources of Data

Data sources can be classified as primary or secondary, giving rise to primary data or secondary
data respectively.

1.6.1 Primary data

Primary data is data collected for the first time from the original source by measurement or direct
observation in response to a specific problem. The data is collected mainly through surveys,
experiments or direct observation. The major advantage of primary data is that the data is up-to-
date and problem specific while a major drawback is that the process of gathering data is costly
and time-consuming.

1.6.2 Secondary data

Secondary data is data that have already been collected by someone for a purpose other than the
problem at hand. The data is already in existence in the form of company reports, government
statistical publications, publications made by government agencies such as ZIMSTAT, as well as
academic and industry publications. The process of gathering secondary data is easier and
cheaper. However, the data obtained may be outdated and may not be entirely suitable for the
purpose of the current study.

Activity 1.5
1. Distinguish between primary and secondary data.
2. Discuss the advantages of primary data over secondary data.

1.7 Types of Data

There are different types of data depending on the nature of the data or how the data have been
measured and gathered.

5
1.7.1 Qualitative and quantitative data
Quantitative data is numeric data which is usually a result of measuring or counting. It is
measurable on either the interval or ratio scale. Quantitative data can further be classified as
discrete or continuous data. Discrete data is data obtained by counting in distinct steps and it is
usually restricted to whole numbers. Continuous data is made up of numeric values that are not
restricted to specific numbers but can be any value in a given interval. There are no gaps between
the values hence the term ‘continuous’

Qualitative data consists of categories or attributes which form the basis of analysis. The data is
measurable on either the nominal or ordinal scale.

Qualitative data is data obtainable from qualitative variables while quantitative data are
measured on quantitative variables. A variable is quantitative if it can be described by a number
for which arithmetic operations such as averaging makes sense. If you sample 10 contact
numbers of people known to you from your mobile phone and proceed to calculate the average,
would this average convey meaning to you? Obviously, this average would be meaningless. But
if you sample 10 commuter omnibuses at a road junction and record the number of passengers in
each of them, it makes some sense to calculate the average number of passengers in an omnibus.
The number of passengers in an omnibus conveys a quantity and it is therefore a quantitative
variable.

A variable is said to be qualitative if it cannot assume a numerical value but can fall into any
one of two or more non- numeric categories. Examples of qualitative variables are:

a. sex, the categories are male or female

b. status of a residential area as high, middle or low density
c. characterisation of beer drinkers as heavy smokers, light smokers or non-smokers

If numbers are used to distinguish between categories of a qualitative variable, the assignment of
numbers is arbitrary. For example, if the variable is sex, we can use 1= male and 2 = female.

6
Activity 1.6
The information in Table 1.1 was collected from a group of five students

Table 1.1
Name Programme Sex Age Marital Status

John MBA M 24 0

Sekai BCom HIR F 19 1

Nancy MBA F 34 2

Edgar BCom MRK M 44 1

Crag BCom B/F M 26 0

Key: 0 = never married 1 = married 2 = divorced

Classify the variables as being qualitative or quantitative.

1.7.2 Hard and soft data

Hard data are facts, measurements or characteristics arising from situations that actually exist or
were in existence. Examples of hard data are:

• Daily sales of a vegetable vendor

• Temperatures recorded at a weather station
• Parties of presidential candidates
• Nationalities of victims of an air crash

Soft data are about beliefs, attitudes and behaviours. Asking shoppers for their opinion about
quality of service or effectiveness of an advertising medium will give rise to soft data.

1.7.3 Cross-section data and time series data

Cross-section data are data collected at the same point in time or based on the same period of
time whereas time series data are observations made on a variable at regular intervals over time.
The quantity of maize produced by SADC countries in 2009 show cross-section data whereas the
annual maize production in Zimbabwe for the years 1980 to 2010 constitutes a time series.

Activity 1.7
Giving suitable examples, distinguish between the following types of data:
a. Continuous data and discrete data
b. Soft data and hard data
c. Time series data and cross-sectional data

7
1.8 Summary
In this unit we identified two main branches of Statistics which are Descriptive Statistics and
Inferential Statistics. Descriptive Statistics deals with the collection, presentation and
characterisation of data while Inferential Statistics is concerned with making conclusions about a
population based on sample results. We defined a random variable as an uncertain quantity
whose values arise by chance. We looked at the classification of random variables as being
qualitative or quantitative and as being discrete or continuous. We learnt that there are two
sources of data - primary sources where data is collected through surveys or direct observation
and secondary sources where data already in existence can be obtained from company reports
and various publications made by government, industry or academic institutions.

8
References

Aczel, A.D. and Sounderpandian, J. (2005). Complete Business Statistics. India: Tata McGraw-
Hill.

Buglear, J. (2005). Quantitative Methods for Business. London: Elsevier Butterworth

Heinemann.

Kazmier, L.J. (2003). Schaum’s Easy Outline: Business Statistics. Blacklick: McGraw-Hill
Trade.

Kemp, S.M. and Kemp, S. (2004). Business Statistics Demystified. Blacklick: McGraw-Hill
Proffessional Publishing.

Muchengetwa, S. (2005). Business Statistics. Harare: Zimbabwe Open University.

Wegner, T. (1999). Applied Business Statistics. Cape Town: Juta and Co.

9
BLANK PAGE
 Unit 2

Sampling Methods

2.1 Introduction
In this unit we highlight that sampling is the process of selecting study units. The results of a
sample study can be grossly misleading if the study units were selected with bias. To ensure that
the sample is representative of the population from which it is drawn, you employ suitable
random sampling methods in its selection.

In this unit, you will learn about the different sampling methods.

2.2 Unit Objectives

By the end of the unit, you should be able to:

• distinguish between a population and a sample

• define random sampling
• give reasons for collecting data from a sample compared to a population
• explain the need for random sampling
• describe the main sampling methods

2.3 Population and Sample

For a given study, the population is the collection of all elements under investigation. It is the
entire collection of study units in which we are interested. For example, in a study to establish
the average monthly salary of bank Chief Executive Officers (CEOs) in Zimbabwe, the
population consists of all salaries of bank CEOs in Zimbabwe. In this case, it is the population of
salaries and not the total number of bank CEOs in the country. A numeric value calculated from
population data like the population mean or the population variance is called a parameter.

It is important to distinguish between a population and a sample. A sample is just a part or

subset of the population. It is a smaller set of measurements or study units selected from the
population. In the above example of salaries, instead of all the salaries being considered in the
study, a representative sample of the salaries is used. A representative sample is one which
closely resembles the population from which it is drawn, that is, it has most of the characteristics

10
of the population. A numeric value calculated from sample data like the sample mean or the
sample variance is called a statistic.

The exercise of enumerating each and every member of a population is called a census. If, on the
other hand, the study is based on a sample, the exercise is called a survey. Sample data is usually
used in studies instead of population data. However, it is important to ensure that the sample
used is representative of the population.

2.3.1 Why a sample survey and not a population census?

The following reasons make it more preferable and practical to conduct a sample survey in place
of a population census:

1. Cost- the cost of carrying out a population study is enormous and prohibitive.
2. Time- it is too time-consuming to conduct a study of the whole population to an extent
that the usefulness of the results may be eroded by the passage of time.
3. Population size- the population may be large, sometimes infinite, making it difficult or
impossible to enumerate, for example, the population of butterflies in Zimbabwe
4. Nature of study- some studies involve destroying or killing the elements of the
investigation, for example, a laboratory study of mice which involves killing them. If the
study is based on the population of mice, this would literally mean killing all the mice
making them extinct. Such studies become unethical and would not make economic
sense.

Activity 2.1
1. Distinguish between the terms
a. Population and sample
b. Survey and census
2. Discuss the reasons for using a sample to extract information about the population
from which the sample is drawn.

2.4 Sampling Methods

A number of sampling techniques can be used to select a representative sample. Some sampling
methods are random while others are non-random.

Random sampling entails choosing elements of the study by chance such that population
elements are equally likely to be part of the sample. This exercise is important because it helps to
eliminate bias in research studies at the same time reducing the cost of study and the time taken
to obtain results. To obtain a random sample from the entire population, a list of all the elements
in the population (a sampling frame) is needed. A sampling frame allows us to draw elements
from the population by randomly generating the numbers of the elements to be included in the

11
sample. Where it is impossible to obtain a sampling frame of the elements in the population, we
may randomize certain factors of our study such as the location, time and date of collecting the
data.

Some of the widely used random sampling methods include the following:

• Simple random sampling

• Stratified random sampling
• Systematic random sampling
• Cluster sampling

2.4.1 Simple random sampling

Simple random sampling is only possible for populations of finite size because the procedure
involves coming up with a numbered list of all the population elements- a sampling frame. The
sampling frame makes it possible for us to draw elements from the population by randomly
generating the numbers of the elements to be included in the sample using either a scientific
calculator, a computer or random number tables. Random digit tables are provided in the
appendices.

Example 2.1
Using random number tables, obtain a simple random sample of 10 accounts from a population
of 500 bank accounts.

Solution 2.1
You start by numbering the accounts from 001 to 500. In the table of random digits, you
randomly choose a row or column to start from. Since 500 is a three digit number, you draw
random numbers with three digits, ignoring any numbers greater than 500.You should also
ignore any number already obtained.

Suppose you select row six as the starting point. The first account to be included is the account
assigned number 428. The next three digit numbers 664 and 627 are ignored since they are
greater than 500. Continuing systematically in the same row you get the following random
numbers: 343, 621 (ignore), 936 (ignore), 362, 358, 259, 351, 298, 285, 300, 606 (ignore), 004.

The sample would therefore consist of the following 10 accounts:

428, 343, 362, 358, 259, 351, 298, 285, 300, 004

Activity 2.2
Use random digits tables to select a random sample of size 25 from a population of 900
elements.

12
2.4.2 Stratified random sampling
Simple random sampling is appropriate for largely homogenous populations, that is, populations
in which study units exhibit similar characteristics. Sometimes a population may consist of
distinct subpopulations that may hold divergent views on the topic of a particular survey, and
then a simple random sample may not adequately reflect the balance of different constituencies
within the population. For example, if a population is subdivided by income levels as low-
income, medium income and high income and income is an important aspect of the analysis,
using simple random sampling will not ensure suitable representation of income levels. This is
an example of a situation where we can use stratified random sampling.

In stratified random sampling, the population is partitioned into two or more subpopulations
which are called strata, and then simple random samples are taken in each stratum and combined
to give the desired sample. If it is essential to have more items in a sample from a stratum with
more elements in the population, the sample sizes in each stratum are made to be proportional to
their frequency in the population.

Example 2.2

A bank has 500 employees of which 250 are stationed at a Harare branch, 200 at a Bulawayo
branch and 50 at a Gweru branch. Management at the bank intends to select a random sample of
40 employees to participate in a study. How can management use stratified random sampling
with proportional allocation to select the 40 employees?

Solution 2.2

The 40 employees will be allocated as follows:

250
Harare branch: × 40 = 20 employees
500

200
Bulawayo branch: × 40 = 16 employees
500

50
Gweru branch: × 40 = 4 employees.
500

Each branch prepares a sampling frame of its employees, then use simple random sampling to fill
its allocation.

Activity 2.3
A popular government secondary school has 900 students of whom 605 are in boarding
and the rest are day scholars. An opinion poll is to be conducted concerning the time to
begin lessons during winter. How would you select a random sample of 200 students to
take part in the poll using stratified random sampling with proportional allocation?

13
2.4.3 Systematic random sampling
Systematic random sampling involves selecting elements at regular intervals from a sampling
frame of the study. The first element is the only one selected at random while subsequent
elements are systematically selected. For this reason, systematic random sampling is viewed as a
quasi- random sampling method.

Suppose a population has N elements and a random sample of size n is to be selected using
systematic random sampling. The steps to be followed are:

1. number the elements in the population from 1 to N

2. calculate the sampling ratio ( k ) by dividing the population size N by the sample size n,
N
that is, k = (2.1)
n
3. randomly select a number between 1 and k inclusive to get the starting point
4. select additional elements at evenly spaced intervals ( every k th element thereafter) until
the sample desired is obtained.

Example 2.3
A bank has 2 000 account holders. A random sample of 40 accounts is to be selected using
systematic random sampling. List the accounts that would make up the sample if the first account
randomly selected is 12.

Solution 2.3
You begin by numbering the accounts from 1 to 2 000. The sampling ratio is calculated as
N 2000
k= = = 50 . Now, starting from 12, every 50th account thereafter is included,
n 40
that is, 12, 62, 112, 162, 212, 262, 312, 362, 412, 462, … until a sample of 40 bank
accounts is obtained.

Activity 2.4
Refer to Example 2.3. Obtain a random sample of 20 accounts using systematic random
sampling if 46 is the numbered account selected randomly.

2.4.4 Cluster sampling

Cluster sampling is suitable where the population consists of homogeneous subpopulations or
clusters and within these clusters elements exhibit different characteristics. You start by selecting
a random sample of the clusters and then sample study units from the selected samples. The
advantages of cluster sampling are that the method is cost effective and less time consuming. The
disadvantages are that the selected sample may not reflect the diversity of the population
elements because some sections of the population may be under-represented or over-represented.

14
Single-stage cluster sampling

The sampling frame is a complete list of all the clusters that make up the population. A random
sample of clusters is selected and all the study units in the sampled clusters are selected for the
survey.

Two-stage cluster sampling

A random sample of clusters is selected and the units in the selected clusters are then sampled
using simple random sampling or systematic random sampling. The primary sampling units are
the ‘clusters’- groups of population elements while the secondary sampling units can be
households or individuals within the selected clusters. The sample, therefore, will not include
every individual or household in the selected clusters as is the case in single-stage cluster
sampling.

Multi-stage cluster sampling

The sampling is done in more than two stages. For example, a random sample of districts
followed by a random sample of wards in the selected districts which is followed by a random
sample of households in the selected wards.

Activity 2.5
Describe how a sample of 500 teachers can be selected from the population of teachers in
your country using multi-stage cluster sampling.

2.5 Other Sampling Methods

In section 2.4 we looked at sampling methods which are probabilistic in nature. There are other
sampling methods which are non-probabilistic in nature. These include the following:

• quota sampling
• judgemental sampling
• convenience sampling

2.5.1 Quota sampling

To start with, you decide on the proportion of the population to be included in the sample. You
then identify distinct groups within the population. You go on to work out the quota of
respondents needed from each group. After that, you then fill each quota by finding enough
elements from each group of the population.

Quota sampling is almost similar to stratified random sampling in that you start by identifying
strata in the population and dividing the population accordingly. However it is much quicker,

15
cheaper and easier because it does not require a sampling frame. Its major drawback is that it is
susceptible to bias.

2.5.2 Judgemental sampling

The researcher uses his/her expertise to select suitable elements of the population to include in
the sample. The method is subjective in that it is purely based on the researcher’s personal
discretion to choose the sample.

2.5.3 Convenience sampling

The researcher selects those elements which are easily accessible to him, making the sampling
process easy and cheaper. However, the sample chosen is not representative of the population
and biased.

2.5.4 Self-selection
The sample is selected by invitation. Volunteers are called upon to participate in the study.
Although the researcher has the pleasure of working with willing participants, the sample is
biased against those with neutral views regarding the topic of study.

Activity 2.6
Discuss the reasons why probabilistic sampling methods are preferred to non-
probabilistic sampling methods.

2.7 Summary
A population refers to the entire collection of measurements in which we are interested while a
sample is part of the population. Due to limited financial resources and time constrains it is
preferable to collect data from a sample rather than the respective population from which the
sample was drawn. Random sampling ensures that each population element is equally likely to
become part of the sample. The following probabilistic sampling methods were described in this
unit:

• Simple random sampling

• Stratified random sampling
• Systematic random sampling
• Cluster sampling

Although there are other non- probabilistic methods that can be used in sampling, probabilistic
methods are preferred because they allow you to make a statistical evaluation of sampling errors
that may arise.

16
References
Aczel, A.D. and Sounderpandian, J. (2005). Complete Business Statistics. India: Tata McGraw-
Hill.

Buglear, J. (2005). Quantitative Methods for Business. London: Elsevier Butterworth

Heinemann.

Kazmier, L.J. (2003). Schaum’s Easy Outline: Business Statistics. Blacklick: McGraw-Hill
Trade.

Kemp, S.M. and Kemp, S. (2004). Business Statistics Demystified. Blacklick: McGraw-Hill
Proffessional Publishing.

Muchengetwa, S. (2005). Business Statistics. Harare: Zimbabwe Open University.

Wegner, T. (1999). Applied Business Statistics. Cape Town: Juta and Co.

17
 Unit 3

Data Collection Methods and Instruments

3.1 Introduction
The quality and usefulness of data depends partly on how the data has been collected and partly
on the attributes of the data collection instruments. The data collection method used should be
able to exploit the convenience brought about by advances in technology such as the use of
mobile phones and the internet. In this unit, you will learn about the different methods of data
collection. You will also learn how to design good questionnaires.

3.2 Unit Objectives

By the end of the unit, you should be able to:

• describe methods of collecting data

• explain the advantages and disadvantages of the various methods of data collection
• identify data collection instruments
• design good questionnaires

3.3 Data Collection Methods

In section 1.6, you saw that there are two sources of data namely primary and secondary sources.
These give rise to primary data and secondary data respectively. Secondary data is obtained from
existing records while primary data can be obtained through four principal ways which are:

• direct observation
• personal interview
• postal interview
• telephone interviewing

3.3.1 Existing records

This method of data collection is faster and less costly because data is readily available and can
be accessed from existing files. However, the data may be outdated and inappropriate for the
current problem. It is also difficult to assess the level of accuracy of the data.

18
3.3.2 Direct observation
The method involves the researcher making observations on the behaviour of study elements.
The major drawback of this method is that humans may not show their usual behaviour once
they realise that they are being observed or in the presence of a stranger. To counter this, the
researcher may pretend to be part of the group. For example, the behaviour of customers in a
supermarket can be noted while the customers themselves are not even aware that they are being
observed. Another disadvantage of this method is that there is no room for probing and as a
result reasons for certain behaviours remain unexplained.

3.3.3 Personal interview

In this method, a respondent is asked questions by an interviewer who records the responses on a
questionnaire. The method involves training and deploying interviewers into the field to meet
respondents face-to-face, making the exercise costly and time consuming and at the same time
killing respondent anonymity. Other disadvantages are that bias may arise if the interviewer
suggests answers to the respondent through use of suggestive gestures or asking leading
questions. The interviewer may also encounter hostile respondents who refuse to open gates and
sometimes leaves you at the mercy of menacing dogs. However, the method is widely used
because of the following advantages:

• a high response rate

• there is room for probing and clarification of misunderstood questions
• non-verbal responses can be noted
• questionnaires are completed in a standard way by the interviewer
• the presence of interviewer discourages collective responses

3.3.4 Telephone interviewing

The method has many of the attributes of personal interviews. In addition, it is less expensive
and much simpler to administer compared to face-to-face interviews. The disadvantages are that
the method is biased against those who do not have telephones. Moreover, the interviewer will
not be able to read the body language of the interviewee.

3.3.5 Postal interview

Sometimes known as self-administered questionnaire interview, the method involves sending a
questionnaire to the respondent by post or e- mail or delivered by hand so that the respondent
completes the questionnaire in the absence of the interviewer before sending it back.

The method is advantageous in that:

• respondent anonymity is guaranteed

• respondents have more time with the questionnaire and can give well-considered answers
• expenses are reduced because there is no need of interviewers
• there is no interviewer bias
19
The disadvantages of the method are that:

• low response rate due to the fact that those who cannot read or write and those simply not
interested in the topic are less likely to respond
• there is no room to probe or clarify misunderstood questions
• respondent may be tempted to seek assistance from a third party resulting in collective
responses being given
• where e-mail is used, the method is biased against those who do not have access to
computers because they will not get a chance to respond. This phenomenon is known as
non-response bias. Non-response bias occurs when we disregard the fact that some
people would not be able to respond to the survey. For questionnaires sent via e-mail, if
there is a link between those with no access to computers and their opinion on the topic
of study, the results will be grossly distorted.

Activity 3.1
1. Suggest ways to improve the response rate in postal interviews.
2. Distinguish between interviewer bias and non-response bias.
3. Discuss the applicability of telephone interviewing in your country given the improved
connectivity of people through mobile phones.

3.4 Data Collection Instruments

The instrument used with the observation method is an observation checklist. It is simply a list of
things or behaviours that the researcher wants to check on.

For a personal interview the researcher has to prepare an interview schedule sometimes known
as an unstructured questionnaire. An unstructured questionnaire is simply a list of questions or
areas of interest to be discussed with a respondent during the interview. It consists of mainly
open-ended questions.

Structured questionnaires are more appropriate for postal interviews. A structured questionnaire
consists of a set of carefully worded questions that are mainly close ended, that is, with pre-
coded response options.

3.4.1 Attributes of a good questionnaire

The design of questionnaires requires careful consideration. The following points should be
noted when designing a good questionnaire:

• Do not make the questionnaire unnecessarily long by asking questions not essential to the
study. A question must be included only if it is contributing to achieving the objectives of
the study.

20
 • Avoid use of technical terms or jargon that the respondent may struggle to understand
• Avoid ambiguous language by keeping questions simple, clear and concise
• instructions must be clear and explicit. Include shortcut instructions which enable the
respondent to skip subsequent questions which may have become irrelevant.
• Arrange questions in a logical sequence
• Avoid leading questions. A question like “Is it not true that you are pregnant?” is pushing
the respondent to answer ‘yes’
• Ask one question at a time. A question like “Did you like our breakfast and lunch today?”
is asking two things at the same time. Suppose the respondent liked the lunch but not the
breakfast, how is he supposed to answer then?
• Where possible provide pre-coded responses to allow easy transfer of data to a computer
package

Before the questionnaire is used in the actual study it has to be tested in a pilot study. The pilot
study provides an opportunity to train interviewers so as to gain consistency in questionnaire
administration.

Activity 3.2
Design a structured questionnaire that you can use to collect data from college students
about their career goals.

3.5 Summary
In this unit we discussed that there are four principal ways of collecting primary data namely
direct observation, personal interview, postal interview and telephone interview. Each method of
data collection has its advantages and disadvantages. An understanding of the advantages and
disadvantages of each method will enable you to choose the appropriate method to use for a
given study.

The major instrument used to collect data is the questionnaire. In constructing the questionnaire,
care must be taken to ensure that the questionnaire is not too long, is well structured and
questions are properly worded. There is need to test the questionnaire in a pilot study before the
actual study.

21
References
Aczel, A.D. and Sounderpandian, J. (2005). Complete Business Statistics. India: Tata McGraw-
Hill.

Buglear, J. (2005). Quantitative Methods for Business. London: Elsevier Butterworth

Heinemann.

Kazmier, L.J. (2003). Schaum’s Easy Outline: Business Statistics. Blacklick: McGraw-Hill
Trade.

Kemp, S.M. and Kemp, S. (2004). Business Statistics Demystified. Blacklick: McGraw-Hill
Proffessional Publishing.

Muchengetwa, S. (2005). Business Statistics. Harare: Zimbabwe Open University.

Wegner, T. (1999). Applied Business Statistics. Cape Town: Juta and Co.

22
BLANK PAGE
 Unit 4

Methods of Displaying Data

4.1 Introduction
For the collected data to convey meaning it should be represented in a suitable manner usually in
tabular or graphical form. Raw data usually is a mass of data which is difficult to understand at
face value. By presenting data in graphical form, salient features about the data can be noted
even at a glance. In this unit we will teach you various ways to display qualitative as well as
quantitative data.

4.2 Unit Objectives

By the end of the unit, you should be able to:

• display qualitative data using a pictogram, pie chart or a bar chart

• display quantitative data using a histogram, frequency polygon or an ogive
• construct a stem and leaf plot for a set of data
• describe the shape of data portrayed by the graphical displays

4.3 Displaying Qualitative Data

In Unit 1 you learnt that qualitative data consists of categories or attributes which form the basis
of analysis. Qualitative data can be displayed using a pictogram, a pie chart or a bar chart.

4.3.1 Pictographs
A pictograph also called a pictogram, use symbols or pictures to represent the number of study
units in each category of an attribute. The symbols used should be easy to associate with the
context of the data and not be so elaborate as to become the focus of attention rather than the
data they are supposed to represent.

Example 4.1

The following data shows the annual enrolment figures of a rural primary school from 2005 to
2007.

23
 Year Number of Pupils

2005 250

2006 300

2007 400

Represent the data on a pictograph.

Solution 4.1

2005

2006

2007

KEY = 100

Figure 4.1 Pictograph of Annual Student Enrolment

4.3.2 Pie charts

A pie chart is used to show how many study units (as a percentage of a given total) belong to
each category of an attribute. Each category is represented by a sector of a circle. The size of the
sector is proportional to the number of study units in the category.

The angle of sector is calculated using the following formula:

no. of study units in category
Angle of sector = × 360 0
total no. of study units (4.1)

A pie chart is not suitable when there are too many categories.

Example 4.2

The distribution of Mr Munzara’s monthly investments in a mutual fund is shown below.

Investment Category Monthly Payment($)

Bonds 150

Stock 250

Property 600

Represent the data on pie chart.

24
Solution 4.2

The total investment is 150 + 250 + 600 = $1 000

The angle of sector for each category is calculated as follows:

150
Bonds × 360 0 = 54 0 (15%)
1000

250
Stock × 360 0 = 90%(25%)
1000

600 0 0
Property 1000 × 360 = 216 (60%)

The angles can be expressed as percentages.

bonds stock property

15%

25%
60%

Figure 4.2 Pie Chart Showing Mr Munzara’s Monthly Investment

Activity 4.1
In a downsizing exercise at a commercial bank, 30 employees were asked if they would
accept a retrenchment package. The responses were recorded as follows:

Response Frequency

Yes 10

No 15

Not sure 5

Represent the responses on a pie chart.

25
4.3.3 Bar charts
There are different varieties of bar charts. In this section, you will learn about three types of bar
charts namely

• simple bar chart

• component bar chart
• cluster bar chart

a) Simple bar chart

A simple bar chart is used to represent only one attribute. Each category is represented by a bar.
The height of each bar is directly proportional to the frequency of the category.

Example 4.3

Draw a simple bar chart of the data in Activity 4.1.

Solution 4.3

No. of employees

15

10

YES NO NOT SURE

Figure 4.3 Bar Chart Showing Responses on Downsizing

b) Component bar chart

A component bar chart is sometimes known as a stacked bar chart. Each bar is divided into
components. It is used to display two attributes. It is particularly useful where you want to
emphasise the relative proportions of each category.
26
Example 4.4

The Dean in the Faculty of Commerce at the Zimbabwe Open University would like to compare
the annual enrolment of undergraduate students over two years.

Year

Programme 2010 2011

Human Resources 250 210

Marketing 105 120

Accounting 145 120

Total 500 450

Construct a component bar chart to represent the data.

Solution 4.4

year 2011

Human Resources
Marketing
Accounting
year 2010

0 100 200 300 400 500 600

Figure 4.4 Component Bar Chart Showing Student Enrolments

c) Cluster bar chart

A cluster bar chart which is sometimes called a multiple bar chart is particularly useful when you
want to emphasise the absolute differences between the categories of one attribute within the
categories of another.

27
Example 4.5

Represent the data of Example 4.4 on a cluster bar chart.

Accounting

Marketing year 2011

year 2010

Human Resources

0 50 100 150 200 250 300

Figure 4.5 Cluster Bar Chart Showing Student Enrolments

Activity 4.2
An A2 farmer’s production figures for the first two years of farming were as follows:

Crop Year

2000 2001

Maize(tons) 40 42

Sugar beans(tons) 25 20

Soya beans(tons) 14 35

Represent the data using a component bar chart and a cluster bar chart.

4.4 Displaying Quantitative Data

Quantitative data is numerical data which is usually a result of measuring or counting. It is
measurable on either the interval or ratio scale. In this section you will learn about methods of
displaying quantitative data namely:

• histogram
• frequency polygon

28
 • cumulative frequency curves (ogives)
• stem and leaf display

4.4.1 Histogram of equal class width

A histogram consists of a set of bars whose areas represent the frequencies of the various classes.
Unlike a bar chart, there are no gaps between the bars. When all the classes have the same width,
then the bars representing the classes will have uniform base length. In that case, the height of
bars can be used to represent frequency of classes and on the horizontal axis will be the class
boundaries (real class limits).

Example 4.6

The monthly salaries earned by a sample of 20 salespersons employed in the motor insurance
industry are:

Salary/($) Number of Employees

200 to less than 300 2

300 to less than400 4

400 to less than 500 8

500 to less than 600 5

600 to less than 700 1

Construct a histogram of the data.

Solution 4.6

Number of employees

200 300 400 500 600 700 Salary ($)

Figure 4.6 Histogram Showing Monthly Salaries

29
4.4.2 Histogram with unequal class width
When the classes of a grouped frequency distribution have unequal class widths, we use
frequency density on the vertical axis. The frequency density is found by dividing the class
frequency by the class width. For instance, in Example 4.7, the frequency density for the first
class is obtained by dividing 2 by 10 to get 0.2.

In some cases the first and/or last class(es) are open-ended. In that case, the usual class width is
assumed to be the width of those classes. Where there is no usual class width, the open-ended
classes are given the same width as the adjoining classes.

Example 4.7

The distribution of ages of customers visiting a barbershop on a Saturday is shown in the table
below:

Age Range(years) Number of Customers

11 – 20 2

21 – 40 5

41 – 45 7

45 – 55 4

56 – 65 2

Produce a histogram to portray the distribution.

Solution 4.7

You begin by changing the apparent class limits into real class boundaries and then calculate the
frequency density for each class.

Age Range(years) Class Width Frequency Frequency Density

10.5 - 20.5 10 2 0.2

20.5 – 40.5 20 5 0.25

40.5 – 45.5 5 7 1.4

45.5 – 55.5 10 4 0.4

55.5 – 65.5 10 2 0.2

30
The histogram is shown in Figure 4.7

Frequency density

1.4

1.2

1.0

0.8

0.6

0.4

0.2

0 10 20 30 40 50 60 70
Age (years)

Figure 4.7 Histogram Showing Distribution of Ages

4.4.3 Frequency polygon

A frequency polygon is another way of showing a frequency distribution although not as widely
used as a histogram. It is drawn by plotting frequency (or frequency density) against class
midpoints. The points are then joined by straight lines. Care must be taken that you do not leave
the frequency polygon hanging. Use the fact that adjoining classes (although not shown) at both
ends of the distribution have zero frequency to anchor the polygon on the horizontal axis.

Often times you are required to construct a frequency polygon having drawn a histogram
already, you simply join the top midpoints of the bars by straight lines.

Example 4.8

Use data of Example 4.6 to draw a frequency polygon.

31
Solution 4.8

Number of employees

200 300 400 500 600 700 Salary ($)

Figure 4.8 Histogram and Frequency Polygon Showing Monthly Salaries

Activity 4.3
The amounts spent by 100 customers who came in during the first day of a clearance sale
at a clothing retail shop are shown in the table below:

Amount Spent($) Number of Customers

0 to less than 100 23

100 to less than 200 30

200 to less than 300 22

300 to less than 400 15

400 and above 10

Construct a histogram and a frequency polygon of the distribution. Comment on the

relationship between a histogram and a frequency polygon.

4.4.4 Cumulative frequency graphs

A cumulative frequency graph shows the way in which data accumulates through the distribution
from the first to the last class in the grouped frequency distribution. The graph, also known as an
ogive, allows us to have an idea of how many observations lie above or below certain values of
interest. There are two types of ogive curves namely:

32
 • a ‘less than’ ogive curve
• a ‘more than’ ogive curve

To plot a ‘less than’ ogive, you should follow these steps:

• Calculate less than cumulative frequencies for each upper class boundary. The less than
cumulative frequency of a given upper boundary is obtained by adding the frequencies of
the classes which are below it. The less than cumulative frequency of the first upper class
boundary is simply the frequency of the first class. The less than cumulative frequency of
the last upper boundary is always equal to total frequency.

• Choose a suitable scale for the axes. The cumulative frequency scale is marked on the
vertical axis and it must begin at zero.
• Plot upper class boundaries against corresponding less than cumulative frequencies and
connect the plotted points with a smooth curve.

Example 4.9

Produce a less than ogive for the data of Example 4.6.

Solution 4.9

Cumulative frequency table for the ‘less than’ ogive

Limits <200 <300 <400 <500 <600 <700

Cumulative frequency 0 2 6 14 19 20

33
 20
Cumulative frequency

15

10

200 300 400 500 600 700

salary

Figure 4.9 Less than Ogive Showing Monthly Salaries

To plot a ‘more than’ ogive curve you should:

• Calculate more than cumulative frequencies for each lower class boundary. The more
than cumulative frequency for the first lower class boundary is always equal to total
frequency. The more than cumulative frequency of a given lower class boundary is
obtained by adding frequencies of classes above it.
• Choose suitable scales for the axis
• Plot lower class boundaries against corresponding more than cumulative frequencies and
connect the plotted points with a smooth curve.

Example 4.10

Produce a more than ogive for the data of Example 4.6.

Solution 4.10

Cumulative frequency table for the ‘more than’ ogive

Limits >200 >300 >400 >500 >600 >700

Cumulative frequency 20 18 14 6 1 0

34
 20

Cumulative frequency

15

10

200 300 400 500 600 700

salary

Figure 4.10 More than Ogive Showing Monthly Salaries

Note: If the less than and more than ogive curves are plotted on the same axes, the intersection of
the curves gives an estimate of the median of the distribution. If you need to use the less than
ogive to estimate the other quartiles and percentiles, you should use percentage cumulative
frequencies on the vertical axis.

Activity 4.4
Produce a less than percentage cumulative frequency curve for the data of Example 4.6
and use it to estimate the percentage of customers who spent less than $450.

4.4.5 Stem and leaf display

A stem and leaf display can be viewed as a histogram which uses actual data values as building
blocks instead of rectangular bars. The use of actual data values in a stem and leaf display is
advantageous in that you will not lose sight of the original data values.

The purposes of a stem and leaf display are to:

• show the shape of the distribution
• sort the observations that makes up the distribution in order of size

35
 • make it easy to detect unusual observations and observations which appear more frequent
than the others
• provide a basis for judging the suitability of different types of averages

Given a set of data, you have to decide on the appropriate stem and leaf to use. For two digit
numbers the tens are used as stem digits and the units as the leaf digits. For example, the two
digit numbers 42, 46 and 49 may be recorded on the same stem line as 4| 2 6 9. For a set of
three digit numbers, either a combination of tens and units may be used as the leaf digits while
the hundreds are used as the stem digits or you use two digit stems and one digit leaves.

To produce a stem and leaf display for a set of data you should follow these steps:

1. List the set of stem digits that appear in the data

2. Record each observation by putting its leaf digit alongside its stem digit.
3. Arrange the leaf digits sharing the same stem digit in order of magnitude

Example 4.11
The daily sales of an airtime vendor over 20 randomly selected days are:
53 59 74 28 61 46 70 54 48 56 36 34 63 59 38 52 51 44 49 66

Produce a stem and leaf display to show these data.

Solution 4.11

Rough Display Final Display

Stem Leaf Stem Leaf

2 8 2 8

3 8 6 4 3 4 6 8

4 8 4 9 6 4 4 6 8 9

5 3 4 9 2 6 1 9 5 1 2 3 4 6 9 9

6 1 3 6 6 1 3 6

7 4 0 7 0 4 KEY: 3| 8 = 38

Figure 4.11 Stem and Leaf Display Showing Sales of an Airtime Vendor

Activity 4.5
The price quotations received from 15 different panel beating companies by a motorist
were:
218 344 502 380 228 432 375 265 390 412 270 326 338 460 512
Produce a stem and leaf display to show these data.

36
4.5 Shape of the Distribution
Another characteristic of data that we are interested in is the shape of the data. Some
distributions are symmetrical while others are skewed. Some are more peaked while others are
flatter. The shape of data can be quite evident from a graph like a histogram or a stem and leaf
display.

4.5.1 Skewness
Skewness is a measure of the degree of asymmetry of a frequency distribution.

The distribution is right-skewed or positively skewed when it stretches to the right than it does to
the left as shown in Figure 4.12 (a). Most of the data is concentrated to the left of the histogram.
The relative position of the mean is such that the mean is higher than the median which is higher
than the mode.

A left-skewed or negatively skewed distribution stretches asymmetrically to the left as shown in

Figure 4.12 (b). In this case most of the data is clustered to the right. The relative positions of the
measures of central tendency are reversed, that is, mean < median < mode.

(a) Right-skewed Distribution (b) Left-skewed Distribution

Figure 4.12: Skewness of Distributions

4.5.2 Kurtosis
Kurtosis is a measure of the peakedness of a distribution relative to the normal distribution. The
larger the kurtosis, the more peaked will be the distribution. We will describe two types of
kurtosis which are:

• leptokurtic
• platykurtic

37
A leptokurtic distribution is a more peaked distribution than the normal distribution. A flatter
distribution compared to the normal distribution is described as a platykurtic distribution. Figure
4.13 shows the positions of these distributions relative to the normal distribution.

(a) Leptokurtic distribution (b) Platykurtic distribution

Figure 4.13 Kurtosis of Distribution

4.6 Summary
In this unit we highlighted that while qualitative data can be displayed using a pictogram, a pie
chart or a bar chart, quantitative data is represented using a histogram, frequency polygon, ogive
or a stem and leaf display. A stem and leaf display is a histogram which uses observed data
values in place of bars. The advantage of a stem and leaf display over a histogram is that you are
able to keep track of the data. When data is represented on a histogram or stem and leaf display,
you can easily see the shape of the data in terms of skewness and kurtosis of the data. Data is
said to be skewed when most of the observed data are clustered at one end of the distribution.
Kurtosis refers to the peakedness of the data.

38
References
Aczel, A.D. and Sounderpandian, J. (2005). Complete Business Statistics. India: Tata McGraw-
Hill.

Buglear, J. (2005). Quantitative Methods for Business. London: Elsevier Butterworth

Heinemann.

Kazmier, L.J. (2003). Schaum’s Easy Outline: Business Statistics. Blacklick: McGraw-Hill
Trade.

Kemp, S.M. and Kemp, S. (2004). Business Statistics Demystified. Blacklick: McGraw-Hill
Proffessional Publishing.

Muchengetwa, S. (2005). Business Statistics. Harare: Zimbabwe Open University.

Wegner, T. (1999). Applied Business Statistics. Cape Town: Juta and Co.

39
BLANK PAGE
 Unit 5

Measures for Describing Ungrouped Data

5.1 Introduction
In this unit, you will learn about measures of central tendency namely the mean, median and
mode. These are measures that describe how the distribution is centred. You will also learn about
measures of dispersion and measures of location. Measures of dispersion show how wide spread
a set of data is while measures of position describe a data value by giving its relative standing
within a distribution. The measures of describing data considered in this unit are for ungrouped
data and those for grouped data will be discussed in Unit 6.

5.2 Unit Objectives

By the end of the unit, you should be able to:

• find the measures of location for a data set

• calculate the measures of dispersion for a data set
• find measures of position for a data set
• choose the most appropriate measure to describe a given set of data
• compare variability of two data sets using the coefficient of variation

5.3 Measures of Location

Measures of location are averages that can be used to describe a set of data by giving an idea of
the centre of the data set. Because of this, they are sometimes known as measures of central
tendency. There are three primary measures of central tendency, namely the mode, median and
arithmetic mean (usually referred to as the mean)

5.3.1 Mode for ungrouped data

In a data set, the mode is that value with the highest frequency, that is, the value that occur the
greatest number of times.

40
Example 5.1

The ages of a random sample of 15 employees of a company are:

32 19 27 34 40 34 54 21 27 29 36 35 27 18 84

Find the mode.

Solution 5.1

The mode is 27. The value 27 is more frequent.

Example 5.2

The daily sales ($) of a vegetable vendor recorded over a week are:

5 12 8 26 15 9 20

What is the mode?

Solution 5.2

In this example, each data value appears once, hence values have the same frequency. In this
case, the mode does not exist. You may be tempted to say the mode is zero. This is incorrect
because it would imply that on the majority of days the vendor did not realise any sales.

Example 5.3

In Example 5.1, suppose the last value was erroneously recorded as 84 instead of 34. Replace 84
with 34 and find the mode of the new data set.

Solution 5.3

The new modal values are 27 and 34. The data set has two modes because the values 27 and 34
each occur three times. The data set is said to be bimodal.

Activity 5.1
The daily sales ($) of a vegetable vendor recorded over a week are:
5 12 0 26 15 0 20
What is the mode?

5.3.2 Median for ungrouped data

The median is the middle observation in an ordered data set. Ordering a data set may sometimes
be arduous especially when the sample size is large. A faster and convenient method of ordering
a data set is to use a stem and leaf display discussed in section 4.4.5.

41
To find the median, you have to establish the median position before determining its value.

Let the ordered values of the data set be y1 , y 2 , y 3 …, y n where n is the number of observations
The median is given by

a. y n +1 if n is odd (5.1)
2

1
b. ( y n + y n + 2 ) if n is even. (5.2)
2 2 2

Example 5.4

Using the data of Example 5.2, find the median.

Solution 5.4

Arranging the data in order gives: 5 8 9 12 15 20 26

Since n = 7 is odd, the median is given by:

y n +1 = y 7 +1 = y 4 .
2 2

The median is the y4 observation which is 12.

Example 5.5

An airtime vendor recorded the following daily sales over one month:

25 34 67 45 32 21 17 19 14 54 36 10 28 48 35 42 36 12 60 22 56 38 27 16
9 24 17 28 45 29

Find the median.

Solution 5.5

You begin by arranging the data in order of magnitude using a stem and leaf display or
otherwise.

42
 Stem Leaf

0 9

1 0246779

2 12457889

3 245668

4 2558

5 46

6 07

Since n = 30 is even, the median is found to be:

1 1
( y n + y n + 2 ) = ( y15 + y16 )
2 2 2 2
The median is located half way between the15th and 16th observation and its value is
1
( 28 + 29) = 28.5
2

Activity 5.2
Use the data of Example 5.1 to find the median.

5.3.3 Mean for ungrouped data

It is commonly known as the arithmetic mean. This is what many people think of as “the
average” yet it is one of several averages. To get the mean you have to find the sum of all the
observations and then divide by the number of observations.

The population mean of a set of N measurements is given by the formula:

1 N
µ= ∑ xi
N i =1
(5.3)

43
where x1 , x2 ,..., x N are the observations and N is the population size.

The sample mean is obtained using the formula:

1 n
s= ∑ xi
n i =1
(5.4)

where x1 , x2 ,..., xn are the observations and n is the sample size.

Example 5.6
The following data show the number of runs a cricketer hits in each of his first 15 consecutive
games.
54 59 35 41 46 25 47 60 54 46 49 46 41 34 22
Calculate the mean.

Solution 5.6
1 n
x= ∑ xi
n 1
1
= (659 )
15

= 43.9333

Activity 5.3
The prices of a textbook in 12 randomly selected shops are:
39 43 48 51 47 42 38 48 52 40 49 54
Find the
a) Mode
b) Median
c) Mean

5.3.4 Choosing the appropriate measure of location

A choice often has to be made on which measure of location to use between the mode, median
and the arithmetic mean. When choosing the right average to use, the following factors are
considered:
• The type of data being dealt with. The mode is suitable when you are dealing with
discrete data made up of a relatively few different values. It is not suitable for continuous
data

• The shape of the distribution. The median is appropriate if you have a distribution that is
skewed rather than symmetrical. The mean is affected by the outliers (extremely high or

44
 low values) while the median is not affected. The mean is therefore suitable for a
symmetrical distribution.

• Whether the average will be the basis for further statistical analysis. The mean has a more
extensive role within Statistics compared to the median and the mode, and therefore it is
preferred where further statistical analysis is needed.

In addition, a consideration of the advantages and disadvantages of the different measures of

location will help you to decide the suitable average for a given situation.
The advantages of the mode are that:
• It is easy to find
• It is one of the feasible values of the variable

The disadvantages of the mode are that:

• It is not appropriate for some types of data, especially continuous data
• The mode may not be unique- there may be two or more in a single distribution
• It may not exist
• It has limited use in further statistical analysis
• It does not take into account all the other values except the most frequent value

The advantages of the median are that:

• It is not affected by extreme values- outliers
• It is usually one of the data values

The disadvantages of the median are that:

• It does not take into account all the values in the distribution except the middle
observation
• It has limited use in further statistical analysis

The advantages of the mean are that:

• It takes into account every value of the data set
• It can be used extensively in further statistical analysis

The disadvantages of the mean are that:

It is sensitive to extremely high or low values; it is disproportionately distorted by outliers in the
distribution. It is therefore not suitable for a skewed distribution.

45
Activity 5.4
The number of patients admitted per day at a hospital on 12 randomly selected days are:
13 1 16 19 26 20 14 21 15 18 22 76

a) Find the mean, median and mode of the data.

b) Which measure of central tendency would you recommend as being appropriate

to describe the data? Give justifications for your answer.

5.4 Measures of Position

Measures of location describe a data value by specifying its relative standing or position within a
distribution. The measures of position that you will learn about are:
• Percentiles
• Quartiles

Both percentiles and quartiles are regarded as order statistics because they involve rearranging
the data values in order of magnitude.

5.4.1 Percentiles
The pth percentile of a group of numbers is that value below which lie p% of the numbers in the
group. For example, the 60th percentile is that observation such that 60% of the ordered
observations are less than it.
The position of the pth percentile is given by:
(n + 1) p (5.5)
100
where n is the number of data points.
Example 5.7
The sales recorded per day by each of 20 ice cream vendors are as follows:
10 5 14 11 16 24 21 12 16 20 22 15 24 18 10 14 19 8 12 20

Find the 50th and 90th percentiles of this data set.

Solution 5.7
You start by rearranging the data from smallest to largest. You can quickly do this using a stem
and leaf plot of the data.

5 8 10 10 11 12 12 14 14 15 16 16 18 19 20 20 21 22 24 24

46
The position of the 50th percentile 50
= (20 + 1)
100
1
= (21)
2

= 10.5

The 50th percentile is the data point lying 0.5 of the way between the 10th and 11th observations.
The 10th observation is 15 and the 11th observation is 16 therefore the 50th percentile is
= 15 + 0.5(16 − 15) = 15.5

The position of the 90th percentile = (20 + 1) 90

100
9
= (21)
10

= 18.9

The 90th percentile is the data point lying 0.9 of the way between the 18th and 19th observations,
that is, between 22 and 24. The 90th percentile is
= 22 + 0.9( 24 − 22) = 23.8

Activity 5.5
Find the 40th and 85th percentile of the data in Example 5.5.

5.4.2 Quartiles
Quartiles are the percentage points that break down the data set into four equal quarters. The
first(lower) quartile (Q1) is the 25th percentile, that is, the data point below which lie one-fourth
of the data. It is that point which separates the lowest quarter of the observations in a distribution
from the rest. The second (middle) quartile is the 50th percentile and is called the median. The
third (upper) quartile (Q3) is the 75th percentile, that is , the point below which lie 75% of the
data. The third quartile separates the highest quarter of observations in a distribution from the
rest.
Example 5.8
Find the lower, middle and upper quartiles of the data in example 5.7
Solution 5.8
5 8 10 10 11 12 12 14 14 15 16 16 18 19 20 20 21 22 24 24
The position of the lower quartile = (20 + 1) 25
100
= 5.25

47
The lower quartile is 0.25 of the way from the 5th observation to the 6th observation, that is, from
11 to 12. Therefore Q1 = 11 + 0.25( 12 - 11) = 11.25.

The middle quartile is the median which was found to be 15.5.

The position of the upper quartile = (20 + 1) 75
100
= 15.75
Q3 is 0.75 of the way from the 15 to the 16th observation, giving Q3 = 20
th

Activity 5.6
Find the lower, middle and upper quartiles of the data in Example 5.5

5.4.3 Box-and-Whisker Plot

A box- and- whisker plot is useful in comparing distributions. It highlights five summary
measures of a distribution namely the:

• median
• lower quartile
• upper quartile
• smallest observation
• largest observation
The middle half of the values in a distribution is represented by a box which has the lower
quartile at one end and the upper quartile at the other. The median is shown by a line inside the
box. Observations in the top and bottom quarters are represented by straight lines called whiskers
which extend from each end of the box, one from the lower quartile to the smallest observation
and the other from the upper quartile to the largest observation. Because of these features, a box
plot makes it easier to determine the spread, skewness, central tendency and possible outliers of a
distribution.
Example 5.9
Draw a box-and-whisker plot of the following data
10 5 14 11 16 24 21 12 16 20 22 15 24 18 10 14 19 8 12 20

Solution 5.9
The smallest observation is 5 while the largest observation is 24. In Example 5.8, it was shown
that the lower quartile is 11.25; the median is 15.5 and the upper quartile is 20.

48
 0 2 4 6 8 10 12 14 16 18 20 22 24 26

Figure 5.1: Box- and- Whisker Plot

Note: The length of the box (showing inter-quartile range) and that of the whiskers (showing the
range) give an indication of the spread of the data.

Skewness of a distribution can also be identified by the use of a box plot. If the portion of the
box to the right of the median is longer than the portion to the left of the median, and /or the right
whisker is longer than the left whisker, the data are right-skewed. On the other hand, a longer left
side of the box and /or left whisker points to a left-skewed data set. If the box and whiskers are
symmetric, the data is not skewed. Figure 5.2 shows box plots for negatively skewed and
positively skewed distributions.

(a) Positively skewed (b) Negatively skewed

Figure 5.2 Box Plots Showing Skewness of Distributions

Activity 5.7
Produce a box plot of the data in Example 5.5 and comment on the skewness of the
distribution.

5.5 Measures of Dispersion for Ungrouped Data

Measures of location by themselves do not adequately describe a distribution. Two data sets may
have the same mean, median and mode but still differ in some way. Consider the following two
data sets.
Set A: 1 2 3 4 5 6 6 7 8 9 10 11
Set B: 4 5 5 5 6 6 6 6 7 7 7 8

The mean, median and mode of both data sets are all equal to 6. The two data sets therefore have
the same central tendency. However, the values in set B are closer to the mean than those in set
A. This shows that the two distributions have different variability.

49
Measures of dispersion give an impression of how widely scattered the observations are around
the mean. When values in a sample or population are close to the mean, they exhibit less
dispersion. The measures of dispersion we are going to look at are:
• Range
• The interquartile range
• The semi interquartile range
• Variance and
• Standard deviation

5.5.1 Range of ungrouped data

The range of a set of observations is the difference between the largest observation and the
smallest observation.
Range = highest observed value – lowest observed value (5.6)

Example 5.10
Find the range of the following data sets.
Set A: 13 1 16 19 26 20 14 21 15 18 22 76
Set B: 12 18 13 15 21 18 19 11 12 14 15 16

Solution 5.10
Range = highest observed value – lowest observed value
Range of set A = 76 - 1
= 75

Range of set B = 21 - 11
= 10

The data in set A are more variable than data in set B.

The range is not a reliable way of measuring the spread of data because it is only based on only
two observations. Although it is very easy to use and understand, the range is adversely affected
by outliers.

5.5.2 Interquartile range

The interquartile range (IQR) is the range between quartiles. More specifically, it is the
difference between the upper quartile and the lower quartile, that is:

IQR = Q3 - Q1 (5.7)

In turn, the semi-interquartile range (SIQR) is half the interquartile range and is obtained from
the formula:

SIQR = (Q3 − Q1 ) (5.8)

2

50
The SIQR is limited in that, just like the range, it is based on selected observations in a
distribution so it cannot always detect dispersion in data. However, it is more resistant to extreme
observations compared to the range.

Activity 5.8
Find the range, interquartile range and the semi- interquartile range of the data in
Example 5.5.

5.5.3 Variance and standard deviation of ungrouped data

The variance and standard deviation allow us to avoid the shortcomings of the range and
interquartile range as measures of dispersion because they take into account all the observations
in the data set as opposed to just selecting a few.

The variance of a set of data is the average squared deviation of the data points from their mean.
Computationally, the variance of a sample of n observations x , x ,..., x is obtained by the
1 2 n
formula:
1  n 2 1  n  
2
2
s = ∑ xi − n  ∑
n − 1  i =1 i =1
xi 
 
(5.9)

The formula for population variance is given by:

1  N 2 1  N  
2

σ =
2
∑ xi − N  ∑
N  i =1 i =1
xi 
 
(5.10)
The standard deviation of a set of observations is the positive square root of the variance of the
set. The variance is a squared quantity and its units which are (unit)2 often have no practical
meaning. For example, the variance of sales data in dollars is (dollars)2 which is practically
meaningless. By taking the square root of the variance, we ‘unsquare’ the units and get the
standard deviation which has the same units as those of the quantity being measured. Therefore,
the standard deviation is easy to interpret compared to the variance.

Example 5.11
The ages of a random sample of 10 hospital doctors are as follows:
26 45 37 34 29 56 74 40 48 45

Find the variance and standard deviation of the data.

51
Solution 5.11
1  n 2 1  n  
2
2
s = ∑ xi − n  ∑
n − 1  i =1 i =1
xi 
 

1 (434) 2 
=  20608 − 
9 10 
= 196.9333
s = 196.9333
= 14.0333
The variance is 196.9333 and the standard deviation is 14.0333.

Activity 5.9
1. The commissions earned by a sample of 12 ice cream vendors in one month were:
97 80 102 45 54 75 98 86 92 69 72 75

Find the variance and standard deviation of the data.

2. The number of vehicle accidents recorded in ten different towns during the last Heroes
holiday was as follows:
8 12 10 6 11 15 6 4 8 7

Find the:
a) mean
b) median
c) mode
d) variance and
e) standard deviation of the data

5.5.4 Coefficient of variation

The coefficient of variation is the standard deviation given as a percentage of the mean. It is
calculated using the following formula:

Coefficient of variation (CV) s (5.11)

= × 100
x
The coefficient of variation is used to compare variability of two or more distributions especially
where the units of measurement differ.

Example 5.12
A multinational company would like to compare the performance of their retail companies
located in Zimbabwe and South Africa. The monthly sales of the companies recorded over the
past ten months were as follows:
South Africa sales (thousands of rands): 675 345 387 650 869 754 900 543 587 659
Zimbabwe sales (thousands of dollars): 280 340 320 421 298 369 268 250 235 342

52
Compare the variability in sales between the two retail companies.

Solution 5.12
South Africa : mean = 636.90 standard deviation = 181.93
C V = 181.93 × 100
636.90
= 28. 56 %
Zimbabwe: mean = 312.30 standard deviation = 57.55
CV = 57.55
× 100
312 .30
= 18.43%

Activity 5.10
Sekai and Sam stay in the same suburb and are employed by the same company in town.
Sekai travels to work by bus and Sam cycles. The times (in minutes) taken by each to get
to work on a sample of 10 days were:
Sekai: 35 26 41 38 36 48 37 30 35 24
Sam: 24 28 24 21 27 26 24 28 22 23

Calculate the coefficient of variation for each set of times. Whose travel time is more
consistent? Justify your answer.

5.6 Summary
In this unit you learnt about measures of central tendency namely the mean, median and the
mode. The three measures are collectively known as averages and they give an impression of the
centre of a distribution. The median is most appropriate when the distribution is skewed
otherwise the mean is widely used. The mode of a data set may not exist and even if it exists, it
might not be unique. The major advantage of the mean is that it takes into account all the data
values.

The measures of dispersion that you learnt about are the range, interquartile range, the variance
and standard deviation. The standard deviation is widely used as a measure of the spread of data
because it is derived from the mean. Where the mean is not suitable as an average, the standard
deviation will also be unsuitable as a measure of dispersion. While the range is very easy to
calculate, it has the disadvantage that it is affected by extreme values in the data set. To compare
variability of two or more data sets we make use of their coefficients of variation. The coefficient
of variation is found by dividing the standard deviation by the mean and the result is usually
expressed as a percentage.

53
References
Aczel, A.D. and Sounderpandian, J. (2005). Complete Business Statistics. India: Tata McGraw-
Hill.

Buglear, J. (2005). Quantitative Methods for Business. London: Elsevier Butterworth

Heinemann.

Kazmier, L.J. (2003). Schaum’s Easy Outline: Business Statistics. Blacklick: McGraw-Hill
Trade.

Kemp, S.M. and Kemp, S. (2004). Business Statistics Demystified. Blacklick: McGraw-Hill
Proffessional Publishing.

Muchengetwa, S. (2005). Business Statistics. Harare: Zimbabwe Open University.

Wegner, T. (1999). Applied Business Statistics. Cape Town: Juta and Co.

54
BLANK PAGE
 Unit 6

Measures of Describing Grouped Data

6.1 Introduction
In Unit 5 you looked at measures of describing data focusing on ungrouped data. The same
measures are used to describe grouped data but the formulae are different. In this unit, you will
learn about how data can be grouped using a frequency distribution table. Examples will be used
to illustrate use of formulae to obtain summary statistics for grouped data.

6.2 Unit Objectives

By the end of the unit, you should be able to:

• construct a grouped frequency distribution from raw data

• explain the advantages and disadvantages of classifying data
• calculate measures of location for grouped data
• calculate the measures of dispersion for grouped data
• calculate measures of position for grouped data
• estimate the mode of classified data using a histogram

6.3 Frequency Distribution

In Unit 5, you looked at measures of describing data pertaining to ungrouped data. Ungrouped
data is raw data in its most original form as collected. Raw data can be converted to grouped or
aggregated data by classifying the data in some systematic way.

One way of classifying data is constructing a grouped frequency distribution table of the data.
This is a table in which data are grouped into conveniently established sets of mutually exclusive
ordered classes with the number of observations that fall into each of the classes shown. Table
6.1 shows a frequency distribution of marks obtained in a qualifying examination of chartered
artisans.

55
 Table 6.1 Distribution of Examination Marks

Class Intervals Class Boundaries Number of Students

10 – 19 9.5 – 19.5 1

20 – 29 19.5 – 29.5 3

30 – 39 29.5 – 39.5 5

40 – 49 39.5 – 49.5 11

50 – 59 49.5 – 59.5 9

60 – 69 59.5 – 69.5 4

70 - 79 69.5 – 79.5 2

The number of observations falling in a given class is the frequency of that class denoted by f .
The first class interval in Table 6.1 has frequency 1. The total frequency of all the classes is 35,
showing that 35 students wrote the qualifying examination.

A distinction has to be made between real and apparent limits. The class intervals in Table 6.1
have apparent limits while the class boundaries have real limits. For example, 10 is the lower
class limit and 19 is the upper class limit of the first class interval.

It is recommended to change apparent limits to real limits before doing calculations or drawing
graphs. This is achieved by subtracting 0.5 from the lower class limits and adding 0.5 to the
upper class limits. The first class interval in Table 6.1 is changed to 9.5 – 19.5. The numbers 9.5
and 19.5 are now called lower class boundary and upper class boundary respectively of the first
class. The difference between the upper and lower class boundary is called the class width.

6.3.1 Advantages of grouping data

The advantages of classifying raw data into aggregated data are:

• to condense a large data set into a manageable form

• to make analysis and interpretation of data easy
• to gain a better overall picture of the data by revealing trends and other salient features
inherent in the data

6.3.2 Disadvantages of grouping data

The disadvantages of grouping data are:

56
 • loss of information- the identity of individual observations is lost
• less accurate results- analysis done using grouped data is less accurate, for example, we
can calculate measures of location but they will be approximations of the true values that
we would get from the original data.

Activity 6.1
The distribution of daily sales of an airtime vendor over the last two months is shown in
Table 6.2 below.

Table 6.2: Distribution of Sales

Sales($) Number of Days

11 – 20 4

21 – 30 9

31 – 40 23

41 – 50 15

5 1 - 60 9

Change the apparent limits into real limits.

6.4 Construction of a Grouped Frequency Distribution

When you have a large data set in its raw form, it is very difficult to manage the data and let
alone to make sense out of the data. The data can be summarised by grouping it into a frequency
distribution. The steps to be followed in grouping a large set of raw data into a frequency
distribution are:

1. Decide on the number of classes to be used. The number of classes is usually between 5
and 11 inclusive. A formula known as Sturges formula can also be used to estimate the
number of classes. The formula is given by

k = 1 + 3.322 log n (6.1)

where k is number of classes and n is the sample size.
2. Determine the range by subtracting the lowest observation from the highest observation.
3. Divide the range by the number of classes to estimate the width of the classes. The width
should be rounded off to the nearest whole and where possible it should be 5 or 10 or
multiples of these.

57
 4. Determine the lower and upper class limits as well as the class boundaries making sure
that the smallest observation is contained in the first class and the largest observation is
covered by the last class.
5. Run through the observations classifying each individual observation by placing a tally
in the appropriate class.
6. Determine the frequency of each class by adding up the tallies in the class.

Example 6.1
The numbers of customers visiting a car sale on 30 randomly selected days are as follows:
16 27 21 34 49 19 22 14 2 27 38 12 19 43 24
24 23 21 32 26 38 9 17 20 12 25 24 31 13 22

Construct a grouped frequency distribution table of the data.

Solution 6.1
1. The number of classes is given by:
k = 1 + 3.322 log 30
= 5.906996808
≈6
2. Range = 49 – 2 = 47
range
3. Class width =
number of classes
47
=
6
= 7.833 ≈ 8
4. The frequency distribution is now constructed as shown in Table 6.3

Table 6.3 Frequency Distribution of Number of Customers

Class Interval Class Boundaries Tally Frequency

2 - 9 1.5 - 9.5 II 2

10 - 17 9.5 - 17.5 IIII I 6

18 - 25 17.5 - 25.5 IIII IIII II 12

26 - 33 25.5 – 33.5 IIII 5

34 - 41 33.5 – 41.5 III 3

42 - 49 41.5 – 49.5 II 2

58
Activity 6.2
The weights (measured to the nearest kg) of 30 female applicants to the post of hospital
matron were as follows:
69 56 59 79 66 71 67 64 72 70 73 71 51 68 54 70 61 77 59 65 64 67
83 65 58 59 63 62 64 70

Using classes 51 – 55, 56 - 60, 61 – 65 and so on until all the values have been accounted
for, construct a grouped frequency distribution table of the data.

6.5 Measures of Location for Grouped Data

These are the mean, median and mode.

6.5.1 Mean of grouped data

Suppose that data is grouped into k classes with frequencies f 1 , f 2 ,..., f k . Let the classes have the
midpoints x1 , x 2 ,...xk respectively. Then the mean is estimated by:

∑fx i i
Mean = i =i
k

∑f i
i =1 (6.2)

where x i the class midpoint or class mark.

The class midpoint is a representative mark of all the marks falling in the particular class. It is
obtained by adding the lower and upper class boundaries and dividing the result by 2.

Activity 6.3
Find class midpoints of data shown in Table 6.2

Example 6.2

Calculate the mean of data in Example 6.1

59
Solution 6.2

Class Interval Class Boundaries Frequency, f i Class Midpoint, x i f i xi

2 - 9 1.5 - 9.5 2 5.5 11

10 - 17 9.5 - 17.5 6 13.5 81

18 - 25 17.5 - 25.5 12 21.5 258

26 - 33 25.5 – 33.5 5 29.5 147.5

34 - 41 33.5 – 41.5 3 37.5 112.5

42 - 49 41.5 – 49.5 2 45.5 91

∑f i = 30 ∑fx
i i = 588.5

Mean =
∑fx i i

∑f i

588.5
=
30

= 19.61666667

≈ 19.6167

Example 6.3

An organisation recorded monthly medical expenses incurred by families of 30 randomly

selected employees.

Amount($00) Number of Employees

1 – 10 3

11 – 20 7

21 – 30 11

31 – 40 5

41 – 50 4

Calculate the mean monthly expenditure per family.

60
Solution 6.3

Amount($00) Frequency, f i Midpoint, x i f i xi

0.5 – 10.5 3 5.5 16.5

10.5 – 20.5 7 15.5 108.5

20.5 – 30.5 11 25.5 280.5

30.5 – 40.5 5 35.5 177.5

40.5 – 50.5 4 45.5 182

∑f i =30 ∑fx
i i = 765

Mean, x =
∑fx i i

∑f i

765
=
30

= 25.5

The mean monthly medical expense per family was $2 500.50

Activity 6.4
The following data gives monthly salaries (in dollars) of 50 employees of a non-
governmental organisation.

Salary($00) No. of Employees

0 to less than 10 10

10 to less than 20 23

20 to less than 30 12

30 to less than 40 3

40 to less than 50 2

Calculate the mean monthly salary of the employees.

61
6.5.2 Median of grouped data
The classes that make up the grouped frequency distribution are arranged in order of magnitude.
To find the median you start by identifying the median class. Assuming the total frequency is n ,
n th n th
the median class is the class that contains the observation. The class containing the
2 2
observation can easily be identified using the less than cumulative frequencies of the data.

The median is given by

Cm (n 2 − Fm −1 )
Median = Lm +
fm (6.3)

where - Lm = lower class boundary of median class, f m = frequency of the median class, Fm −1 =
cumulative frequency up to(but excluding) the median class, C m = width of the median class, n =
total frequency and m = subscript used to denote median class

Example 6.4

Calculate the median of data in Example 6.1

Solution 6.4

Class Interval Class Boundaries Frequency, f i Cumulative Frequency, F

2 - 9 1.5 - 9.5 2 2

10 - 17 9.5 - 17.5 6 8

18 - 25 17.5 - 25.5 12 20

26 - 33 25.5 – 33.5 5 25

34 - 41 33.5 – 41.5 3 28

42 - 49 41.5 – 49.5 2 30

30 th
The median class contains the observation, that is, the 15th observation. This is contained in
2
the 17.5 – 25.5 class. Therefore, Lm = 17.5 , C m = 8 , f m = 12 and Fm −1 = 8 . You now substitute
these values into the formula.

62
 Cm ( n 2 − Fm −1 )
Median = Lm +
fm

8(15 − 8)
= 17.5 +
12

56
= 17.5 +
12

= 22.16666667

≈ 22 customers

Example 6.5

Find the median of the data in Example 6.3.

Solution 6.5

Amount($00) Frequency, f i Midpoint, x i f i xi Cumulative Frequency, F

0.5 – 10.5 3 5.5 16.5 3

10.5 – 20.5 7 15.5 108.5 10

20.5 – 30.5 11 25.5 280.5 21

30.5 – 40.5 5 35.5 177.5 26

40.5 – 50.5 4 45.5 182 30

∑f i =30 ∑fx
i i = 765

The median class contains the 15th observation and it is 20.5 – 30.5

Cm (n 2 − Fm −1 )
Median = Lm +
fm

10(15 − 10)
= 20.5 +
11

= 20.5 + 4.545454545

The median expense was $2 504.55

63
Activity 6.5
Using the data of Activity 6.4, calculate the median of monthly salaries of the employees.

6.5.3 Mode of grouped data

The mode is the data value that has the highest frequency. However, when raw data is put into
classes, it is difficult to tell exactly how many times each value occurs, but you can tell the
number of times each class occurs. The class that occur the greatest number of times than any
other class is the modal class. The actual mode lies in the modal class and can be estimated by
calculation or graphically using a histogram.

The mode is calculated using the formula

C m ( f m − f m−1 )
Mode = Lm +
2 f m − f m −1 − f m+1 (6.4)

where Lm - lower class boundary of the modal class, C m -class width of modal class, f m -
frequency of the modal class, f m −1 - frequency of the class one step below the modal class, f m +1 -
frequency of the class one step above the modal class and m = subscript used to denote modal
class

Example 6.6

Calculate the mode of data in Example 6.1

Solution 6.6

The highest frequency of 12 corresponds to the interval 17.5 – 25.5. The interval 17.5 – 25.5 is
taken to be the modal class, therefore, Lm = 17.5 , f m = 12, f m −1 = 6, f m +1 = 5 . Substituting these
values into the formula gives

C m ( f m − f m−1 )
Mode = Lm +
2 f m − f m −1 − f m+1

8(12 − 6)
= 17.5 +
2(12) − 6 − 5

48
= 17.5 +
13

= 21.19230769

≈ 21 customers
64
Example 6.7

Calculate the mode of the data in Example 6.3

Solution 6.7

The modal class is 20.5 – 30.5

C m ( f m − f m−1 )
Mode = Lm +
2 f m − f m −1 − f m+1

10(11 − 7)
= 20.5 +
2(11) − 7 − 5

40
= 20.5 +
10

= 24.5

The modal expense was $2 450.00

The use of a histogram to estimate the mode requires that the bars be of uniform width. The
method is illustrated in Figure 6.1 using the data of Example 6.1.

Frequency

12

10

0 1.5 9.5 17.5 25.5 33.5 41.5 49.5 Customers per day

Mode = 21

Figure 6.1 Histogram Showing Distribution of Customers

65
Activity 6.6
1. Using the data of Activity 6.4, calculate the mode of monthly salaries of the
employees.
2. Draw a histogram of the data in Activity 6.4 and use it to estimate the mode. Compare
your answer with that obtained in 1 above.

6.6 Measures of Position for Grouped Data

In this section you will learn how to obtain quartiles and percentiles from grouped data.

6.6.1 Quartiles for grouped data

In section 5.3.2 you realised that the middle quartile is in fact the median. As a result, quartiles
can be obtained from grouped data in a similar way as was used for the median. You begin by
identifying the appropriate quartile class. The lower quartile class is the class that contains the
n th 3n th
observation while the upper quartile class contains the observation. The following
4 4
computational formulae are then made use of to estimate the quartiles:

Cq ( n 4 − Fq −1 )
Lower quartile, Q1 = Lq +
fq
(6.5)

Cq (3n 4 − Fq −1 )
Upper quartile, Q3 = Lq +
fq
(6.6)

where Lq = lower limit of the quartile class, C q = class width of the quartile class, f q = frequency
of the quartile class and Fq −1 = cumulative frequency of the class one step below the quartile
class.

Example 6.8
Calculate the lower quartile, Q1 and upper quartile, Q3 for the data of Example 6.1

66
Solution 6.8
Refer to the table for Solution 6.4.
30 th
The lower quartile class contains the observation, that is, the 7.5th observation. The lower
4
quartile class is therefore 9.5 – 17.5

Cq ( n 4 − Fq −1 )
Lower quartile, Q1 = Lq +
fq

8(7.5 − 2)
= 9.5 +
6

= 9.5 + 7.333333333

= 16.83333333

≈ 16.8333

3n th
The upper quartile class contains the observation, that is, the 22.5th observation. This class
4
is 25.5 -33.5

Cq (3n 4 − Fq −1 )
Upper quartile, Q3 = Lq +
fq

8(22.5 − 20)
= 25.5 +
5

= 25.5 + 4

= 29.5

Activity 6.7
Using the data of Activity 6.4, calculate the lower and upper quartiles of monthly salaries
of the employees.

6.6.2 Percentiles for grouped data

When an ordered set of data is divided into 100 equal parts, the division points are called
percentiles. You will recall that the 25th percentile is in fact the lower quartile, while the 50th and
75th percentiles are equivalent to the middle and upper quartiles respectively. Therefore,
percentiles are calculated in a similar way to that of quartiles. The formula for percentiles is
given by:

67
 kn
Cp ( − F p −1 )
Pk = L p + 100
fp
(6.7)

where L p = lower limit of the class containing the percentile, C p = width of the percentile class,
f p = frequency of the percentile class, F p −1 = cumulative frequency of the class one step before
the percentile class, n = total frequency and k = the desired percentage.

Example 6.9

Find the 30th percentile of the data in Example 6.1.

Solution 6.9

30n th
The class that contains the observation, that is, the 9th observation is 17.5 – 25 5.
100

30n
Cp ( − F p −1 )
30th percentile, P30 = L p + 100
fp

8(0.3 × 30 − 8)
= 17.5 +
12

8(9 − 8)
= 17.5 +
12

= 17.5 + 0.666666666

= 18.166666666

≈ 18.1667

Activity 6.8
Using the data of Activity 6.4, find the:
a) 65th percentile
b) 80th percentile.

68
6.7 Measures of Dispersion for Grouped Data
Dispersion is the amount of variation in the data. It measures the extent to which data values
scatter away from their mean. In section 5.4 we looked at measures of dispersion for ungrouped
data. The same measures can be found for grouped data.

6.7.1 Range for grouped data

The range is found by subtracting the real lower limit of the lowest class interval from the real
upper limit of the highest class interval.

Example 6.10

Find the range of the data in Example 6.1

Solution 6.10

Range = 49.5 – 1.5 = 48

6.7.2 Interquartile range for grouped data

The formula is similar to that of finding the interquartile range of ungrouped data. The difference
lies in how to obtain the quartiles. Refer to Example 6.5, were you obtained the lower and upper
quartiles of the data in Example 6.1. The interquartile range is now given by:

Interquartile range = Q3 − Q1

= 29.5 – 16.8333

= 12.6667

6.7.3 Variance and standard deviation of grouped data

When calculating variance or standard deviation, you should verify whether the data relate to a
population or a sample.

Suppose that data were put into k classes. Let x1 , x 2 ,..., x k be the midpoints of the class intervals
and f 1 , f 2 ,..., f k be the respective class frequencies, then the population variance is given by:

1 (∑ f i xi ) 2
σ2 = (∑ f i xi2 − )
N N (6.8)
k
where N = ∑ f i is the population size.
i =1

The sample variance is given by:

69
 1 (∑ f i xi ) 2
2
s = ( ∑ f i xi −
2
)
n −1 n (6.9)
k
where n = ∑ f i is the sample size.
i =1

The standard deviation is found by taking the square root of the variance.

Example 6.11
Calculate the variance and standard deviation of the data in Example 6.1

Solution 6.11

Class Boundaries Frequency, f i Class Midpoint, x i f i xi f i xi2

1.5 - 9.5 2 5.5 11 60.5

9.5 - 17.5 6 13.5 81 1093.5

17.5 - 25.5 12 21.5 258 5547

25.5 – 33.5 5 29.5 147.5 4351.25

33.5 – 41.5 3 37.5 112.5 4218.75

41.5 – 49.5 2 45.5 91 4140.5

∑f i = 30 ∑fx i i = 588.5 ∑fx

i
2
i = 19411.5

1 (∑ f i xi ) 2
Variance, s =2
( ∑ f i xi −
2
)
n −1 n

1 (588.5) 2
= (19411.5 −
29 30

1
= (19411.5 − 11544.40833)
29

= 271.279023

≈ 271.2790

Standard deviation, s = 271.279023

70
 = 16.47055017

≈ 16.4706

Example 6.12

Calculate the variance and standard deviation of the data in example 6.3

Solution 6.12

Amount($00) Frequency, f i Midpoint, x i f i xi f i xi2

0.5 – 10.5 3 5.5 16.5 90.75

10.5 – 20.5 7 15.5 108.5 1681.75

20.5 – 30.5 11 25.5 280.5 7152.75

30.5 – 40.5 5 35.5 177.5 6301.25

40.5 – 50.5 4 45.5 182 8281

∑f i =30 ∑fx
i i = 765 ∑fx
i
2
i = 23507.5

1 (∑ f i xi ) 2
2
Variance, s = (∑ f i xi2 − )
n −1 n
1 (765) 2
= ( 23507.5 − )
29 30
1
= (23507 .5 − 19507 .5)
29
1
= (4000)
29
= 137.9310345

Standard deviation = 137.9310345

= 11.74440439

The standard deviation was $1174.44

71
Activity 6.9
1. Using the data of Activity 6.3, find the:
a) Variance
b) Standard deviation
2. The annual profits made by a random sample of 40 companies in the textiles industry
are shown in the following below

Profit ($00) Number of Companies

10 but less than 20 3

20 but less than 30 7

30 but less than 40 12

40 but less than 50 10

50 but less than 60 5

60 but less than 100 3

Calculate the:
a) Mean
b) Median
c) Mode
d) Semi-interquartile range
e) Variance
f) Standard deviation

6.8 Summary
In this unit you learnt about how to obtain grouped data from raw data. Classes used in a grouped
frequency distribution should not overlap. However apparent limits should be converted to real
limits before calculations are made and before drawing graphs.

Grouped data is more manageable than a mass of raw data. However, analysis made using
grouped data is less accurate since results obtained are approximations of the actual values.

72
References
Aczel, A.D. and Sounderpandian, J. (2005). Complete Business Statistics. India: Tata McGraw-
Hill.

Buglear, J. (2005). Quantitative Methods for Business. London: Elsevier Butterworth

Heinemann.

Kazmier, L.J. (2003). Schaum’s Easy Outline: Business Statistics. Blacklick: McGraw-Hill
Trade.

Kemp, S.M. and Kemp, S. (2004). Business Statistics Demystified. Blacklick: McGraw-Hill
Proffessional Publishing.

Muchengetwa, S. (2005). Business Statistics. Harare: Zimbabwe Open University.

Wegner, T. (1999). Applied Business Statistics. Cape Town: Juta and Co.

73
BLANK PAGE
 Unit 7

Introduction to Probability

7.1 Introduction
Business organisations sometimes operate in unstable economic and political environments
characterised by uncertainty and risk. Managers are required to make important business
decisions under these conditions. A fairly good understanding of probability will enable
managers to measure and assess risk in order to make informed decisions which are not costly to
the organisation.

In this unit, you will be introduced to the basic concepts of probability. You will learn about the
different approaches to probability. You will also use basic rules of probability to compute
probabilities of various types of events.

7.2 Unit Objectives

By the end of the unit, you should be able to:

• use the set notation to describe sample space and events

• define probability, statistical experiment, sample space, and event
• describe the different approaches to probability
• distinguish between simple and compound events
• use basic rules of probability to compute probabilities of various types of events
• compute conditional probability
• draw and make use of probability tree diagrams in solving problems

7.3 What is Probability?

A probability is a numeric measure of the likelihood of a particular outcome. It expresses the
chances of something happening in quantitative terms. The probability of an outcome is a
number between 0 and 1 inclusive. A probability of zero indicates that the outcome is certain not
to occur while a probability of one show that the outcome is certain to occur. If an outcome is
equally likely to occur as not to occur, its probability will be 0.5. A probability close to 1 show

74
that the chances are high that the outcome will occur while a probability close to 0 show that the
chances are slim that the outcome will occur.

7.4 Set Notation

An understanding of sets will help you to understand probability concepts better. In this section,
we shall look at those aspects of set theory that are relevant to this course.

7.4.1 Elements of a set

A set is described by listing its elements. For example, if A is a set of even numbers less than 10,
we write A = {2; 4; 6; 8}. We may also define set A using the set-builder notation, that is, A =
{x: x < 10 and even}. We use the symbol n(A) to represent the number of elements in set A. In
this particular example, n(A) = 4.

If a set does not have elements it is called an empty set. Suppose set C is empty, we write C = { }
and n(C) = 0.

7.4.2 Universal set

The universal set, denoted by ξ , is defined as the entire set of all elements under investigation.

7.4.3 Subset
A set contained in another set is called a subset.

Let the universal set ξ be the set of counting numbers below 10, that is ξ = {1; 2; 3; 4; 5; 6; 7; 8;
9}. Set A = {2; 4; 6; 8} is a subset of ξ because all the elements of set A are part of ξ . The
relationship between the two sets can be represented on a Venn diagram as shown in Figure 7.1.

Figure 7.1 Venn Diagram Showing Sets ξ and A

7.4.4 Complement of a set

Let us refer to set A and set ξ as defined in section 7.4.3. The complement of set A, denoted A ,
is the set of all elements outside set A but contained in ξ .Thus A = {1; 3; 5; 7; 9} and n( A ) = 5 .
Set A and its compliment A are said to be mutually exclusive because they do not have common
elements.

75
7.4.5 Union and intersection of sets
Let us define a new set B as B = {y: y < 10 and is a multiple of 3}. The elements of B are = {3;
6; 9}. We shall consider set A as already defined. The union of set A and set B, denoted by A ∪
B, is the set that contains elements of set A and set B combined together. Therefore A ∪ B = {2;
3; 4; 6; 8; 9}.

The set A ∩ B that contains only those elements that are common to both set A and set B is
called the intersection of the two sets. Therefore A ∩ B = {6}. If two sets do not have any
common elements, they are said to be disjoint.

The intersection and the union of set A and set B can also be represented on a Venn diagram as
shown in Figure 7.2.

ξ ξ

A B A B

a) A ∩ B b) A ∪ B

Figure 7.2 Venn Diagrams Showing Union and Intersection of Sets

Activity 7.1
Let the universal set be the set ξ = {x: 0 < x ≤ 20 and is an integer}, set A = {x: x is a
prime number} and set B = {x: x is a factor of 18}.
a) List the elements of the following sets
i. B
ii. A ∪ B
iii. A ∩ B
b) Find n( B ) and n(A ∩ B).
c) Represent the sets ξ , A and B on a Venn diagram.

7.5 Basic Definitions of Probability Terms

The following terms are useful in understanding probability.

76
7.5.1 Random experiment
The idea of an experiment in statistics is different from that of experiments carried out in science
laboratories. We define a random experiment, sometimes known as a statistical experiment, as a
process that generates outcomes which cannot be predicted with certainty. Some examples of
random experiments are:

• Tossing a fair coin. The possible outcomes are head (H) or tail (T), but we cannot tell in
advance which of the two will occur.
• Playing a game of soccer. The possible outcomes are win, draw or lose, but before the
end of the game you cannot certainly say a particular team is going to win.

7.5.2 Sample space

The sample space, denoted by S, is the set of all possible outcomes of an experiment. Each of the
individual outcomes is called a sample point. If the experiment is that of tossing a fair coin once,
the sample space is S = {H; T}. The sample space for an experiment involving tossing a fair six-
sided die once is S = {1; 2; 3; 4; 5; 6}.

Sometimes the possible outcomes of an experiment are difficult to imagine without the use of
some aids such as a tree diagram. For example, Figure 7.3 shows the possible outcomes when a
coin is tossed three times.

H HHH

H T HHT

H T H HTH

T HTT

T H H THH

T THT

T H TTH

T TTT

Figure 7.3 Tree Diagram of Tossing a Coin Three Times

The sample space is presented as S = {HHH, HHT, HTH, HTT, THH, THT, TTH, TTT}

Another popular experiment is that of throwing two dice simultaneously. The sample space is
represented on a possibility space diagram as shown in Figure 7.4.

77
 2nd dice

1 2 3 4 5 6

1 (1,1) (1,2) (1,3) (1,4) (1,5) (1,6)

2 (2,1) (2,2) (2,3) (2,4) (2,5) (2,6)

3 (3,1) (3,2) (3.3) (3,4) (3,5) (3,6)

1st dice 4 (4,1) (4,2) (4,3) (4,4) (4,5) (4,6)

5 (5,1) (5,2) (5,3) (5,4) (5,5) (5,6)

6 (6,1) (6,2) (6,3) (6,4) (6,5) (6,6)

Figure 7.4 Sample Space for Two Dice Thrown Simultaneously

Activity 7.2
Write down the sample space for the following experiments:
a) A fair coin tossed twice
b) Tossing a coin and a dice simultaneously
c) Two dice are thrown simultaneously and X is the sum of the numbers showing.

7.5.3 Event
An event is a subset of a sample space. It is a collection of one or more sample points of an
experiment.

There are two categories of events which are simple events and compound events. If an event
comprises of only one sample point, it is called a simple event. On the other hand, an event that
comprises of at least two sample points is called a compound event. The event getting a 5 when a
die is thrown once is a simple event, E1 = {5}. The event getting an even number when a die is
thrown is a compound event which is written as E2 = {2, 4, 6}. When a die is thrown and a 2 or 4
or 6 shows, we say the event E2 has occurred.

7.5.4 Mutually exclusive events

Let A and B be two events. Event A and B are mutually exclusive if they cannot occur
simultaneously. The two events are disjoint, that is, they do not have common elements as shown
in Figure 7.5 (a). For example, when a candidate sits an examination, the candidate can either
pass or fail the examination. The event ‘pass’ and the event ‘fail’ are mutually exclusive events

78
because the two cannot occur together, that is, the candidate cannot pass and fail the exam at the
same time.

7.5.5 Non-mutually exclusive events

Two events are non-mutually exclusive when they can occur together. The two events have
common sample points as shown in Figure 7.5 (b). Refer to the experiment of tossing a fair die
once. Let A be the event ‘getting an even number’ and B be the event ‘getting a multiple of 3’. If
the tossed die shows a 6, we say both events A and B have occurred since 6 is an even number as
well as a multiple of 3. The two events can jointly occur and their joint probability is not equal to
zero.

A B A B

(a) Mutually exclusive events (b) Non-mutually exclusive events

Figure 7.5 Mutually Exclusive and Non-mutually Exclusive Events

7.5.6 Independent events

Two events are independent if the occurrence of one event has no effect on the occurrence of the
other event. The occurrence of one event will not stop or affect the occurrence of the other event
because the two events are unrelated. When two events are not independent, their compliments
are also not independent.

7.6 Approaches to Probability

There are three different approaches to probability namely:

• Judgmental approach
• Experimental approach
• Theoretical approach

7.6.1 Judgmental Approach

In the judgmental approach, the likelihood of an event happening is evaluated based on personal
opinion alone. The evaluation is done by someone who is an expert in the area. For example, in a
league match between Caps United and Dynamos FC, an experienced soccer analyst like Charles
Mabika can gauge with credibility the chances of Dynamos winning or losing the game.

79
The judgmental approach is subjective because it is based on personal intuition. Two people may
give contradicting predictions on the outcome of an experiment.

7.6.2 Experimental Approach

This approach is based on the relative frequency of occurrence of the particular event in previous
experiments. Using the example of a soccer match between Dynamos FC and Caps United, if the
two teams have played against each other 10 times before and Dynamos FC has won 6 of the
games, the chances that Dynamos FC will win the next game is 6 10 . This relative frequency is
based on a limited number of experiments (games) and therefore it is an approximate of the
‘true’ probability which is the relative frequency based on an infinite number of experiments.

Example 7.1
Records show that 50 out of 800 items coming out of a production line are defective. What is the
probability that the next item produced is defective?

Solution 7.1
50
Using past records, the probability that the next item is defective is = = 0.0625 .
800

7.6.3 Theoretical Approach

We make use of the theoretical approach when an experiment has a constant, limited and
identifiable number of possible outcomes. Moreover, all the possible outcomes are equally likely
to occur. One can obtain the probabilities of such outcomes through abstract reasoning without
actually performing the experiments.

Let n(S) be number of all possible outcomes of an experiment and n(E) be number of elements in
a given event, then the probability of the event is given by

n( E )
P( E ) =
n( S ) (7.1)

Example 7.2

A fair six-sided die is thrown once. Find the probability of the following events

a) getting a 5
b) getting an even number
c) getting a number greater than 6

80
Solution 7.2
The sample space is S = {1, 2, 3, 4, 5, 6} giving n( S ) = 6 .
a) Let E1 be the event ‘getting a 5’, then E1 = {5} and n( E1 ) = 1

n( E1 )
P( E1 ) =
n( S )

1
=
6

b) Let E2 be the event ‘getting an even number’ then E2 = {2, 4, 6} and n( E 2 ) = 3

n( E 2 )
P( E 2 ) =
n( S )

3
=
6

1
= or 0.5
2

c) Let E3 be the event ‘getting a number greater than 6’ then E3 = { } and n( E3 ) = 0

n( E 3 )
P( E3 ) =
n( S )

0
=
6

=0

NB The event ‘getting a number greater than 6’ is an impossible event which is certain not to
occur and therefore its probability is 0.

Example 7.3
A bag contains 5 red balls, 3 green balls and 2 black balls. A ball is to be picked at random from
the bag. What is the probability that the ball is
a) green?
b) red?
c) red or green or black?

81
Solution 7.3
3
a) P (green) = = 0.3
10

5
b) P (red) = = 0.2
10

c) Since the bag contains red, green and black balls only, it is obvious that one ball picked at
random from the bag can either be red, green or black and nothing else. The probability is
1.

Example 7.4
A non-governmental organisation took a random sample of 500 households in a high density
suburb to estimate the average number of people per household. The following data were
obtained.

Size of household 1 2 3 4 5 More than 5

Number of households 16 24 240 126 59 35

One household was randomly chosen from the list of households. What is the probability that the
household has

a) three people?
a) at least 2 people?
b) at most 4 people?
c) between 2 and 5 people?

Solution 7.4
240
a) P (three) = = 0.48
500

b) Number of households with at least 2 people = 24 + 240 + 126 + 59 + 35 = 484

484
P (at least 2) = = 0.968
500

c) Number of households with 4 people or less = 16 + 24 + 240 + 126 = 406

406
P (at most 4) =
500

= 0.812

82
 d) Number of households with 3 or 4 people = 240 + 126 = 183

183
P (between 2 and 5) = or 0.732
250

Activity 7.3
1. A box contains 8 red marbles, 7 black marbles and 5 white marbles. If one marble is
drawn at random from the box, what is the probability that it will be
a) red?
b) black?
c) neither red nor black?
2. A fair coin is tossed twice. Let X be number of heads obtained. Find the probability of
getting:
a) two heads
b) at least one head
c) no head

7.7 Basic Rules of Probability

The following are general rules of probability that hold regardless of the particular kind of
probability.

7.7.1 Range of values

For any event E, the probability P(E) will always lie between 0 and 1 inclusive, that is,

0 ≤ P( E ) ≤ 1

7.7.2 Sum of probability

Let E1 , E 2 ,...E n be the collection of all simple events of a random experiment. Then the sum of
the individual probabilities is 1. That is
n
P( E1 ) + P ( E 2 ) + ... + P( E n ) = ∑ P( Ei ) = 1 .
i =1

7.7.3 Rule of complementary events

The complement of event A, denoted by A , is the set of all sample points in the sample space
that are outside A. The sum of the probabilities of complementary events equals 1, that is,

83
 P( A) + P( A ) = 1

⇒ P ( A ) = 1 − P ( A) (7.2)

Example 7.5
The probability that John will come to work on Friday is 0.2. What is the probability that John
will not come to work on Friday?

Solution 7.5
Let A be the event ‘John will come to work on Friday’ so that A becomes the event ‘John will
not come to work on Friday’
P( A) + P( A ) = 1

⇒ P ( A ) = 1 − P ( A)

= 1− 0.2

= 0.8

∴ the probability that John will not come to work is 0.8

Example 7.6
Suppose a fair coin is tossed three times. What is the probability that at least one head is
obtained?

Solution 7.6
As shown in Figure 7.1, the sample space is S = {HHH, HHT, HTH, HTT, THH, THT, TTH,
TTT}.

What is required is the probability of the set {HHH, HHT, HTH, HTT, THH, THT, TTH} whose
complement is {TTT}. Therefore,

P(at least one head) = 1- P(TTT)

1
= 1−
8

7
= or 0.875
8

7.7.4 Addition rule

The addition rule is used to find the probability of the union of two events. The rule is defined
for events which are mutually exclusive as well as those that are non-mutually exclusive.

84
The addition rule for non-mutually exclusive events is stated as follows:

P ( A ∪ B ) = P ( A or B ) = P ( A) + P ( B ) − P ( A ∩ B ) (7.3)

The probability of the intersection of the two events, P ( A ∩ B ) is called the joint probability of
events A and B.

Mutually exclusive events are disjoint; they have no intersection. The probability of the
intersection is zero, that is, P ( A ∩ B ) = 0 . As a result, the addition law for mutually exclusive
events is stated as:

P ( A ∪ B ) = P ( A or B ) = P ( A) + P ( B ) (7.4)

Example 7.7
A fair dice is tossed once. Find the probability of getting
a) an even number or an odd number
b) an even number or a multiple of 3.

Solution 7.7
The sample space = {1, 2, 3, 4, 5, 6}. Let A be the event of getting an even number, B the event
of getting an odd number and C the event of getting a multiple of 3. Therefore A = {2, 4, 6}, B =
{1, 3, 5} and C = {3, 6}.

a) Set A and set B are disjoint, as a result event A and event B are mutually exclusive.

P ( A or B ) = P ( A) + P ( B )

3 3
= +
6 6

=1

b) Event A and event C are non-mutually exclusive.

P ( A or C ) = P ( A) + P (C ) − P ( A ∩ C )

3 2 1
= + −
6 6 6

2
= or 0.6667
3

Example 7.8
It is known that 80% of the people who inquire about investment opportunities at the Zimbabwe
Investment Centre end up purchasing stock, and 30% end up purchasing bonds. It is also known

85
that 25% of the inquirers end up getting a diversified portfolio with both bonds and stocks. If a
person is just making an inquiry, what is the probability that s/he will get stock or bonds?

Solution 7.8
Let A be the event ‘person will purchase stock’ and B the event ‘person will purchase bonds’.
The two events are non-mutually exclusive.

P ( A ∪ B ) = P ( A or B ) = P ( A) + P ( B ) − P ( A ∩ B )

= 0.80 + 0.30 − 0.25

= 0.85

Activity 7.4
An organisation has 200 employees, 160 of them have had at least some tertiary
education and 105 of the employees underwent a national youth training programme. 85
employees have tertiary education and also underwent national youth training. If an
employee is randomly selected, what is the probability that he/she has tertiary education
or has had national youth service training or both?

7.7.5 Product rule for independent events

Let A and B be two independent events, then

P ( A ∩ B ) = P ( A and B ) = P ( A) × P ( B ) (7.5)

The rule also holds for more than two events, that is, the probability of the intersection of several
independent events is the product of the separate probabilities.

Example 7.9
The probability that TB Supermarket and AM Hyper run out of stock on the eve of Christmas
day is 0.4 and 0.7 respectively. What is the probability that both shops run out of stock on
Christmas Eve?

Solution 7.9
The two events are independent
P ( A and B ) = P ( A) × P ( B )

= 0.4 × 0.7

= 0.28

86
Example 7.10
A box contains 5 red balls and 4 white balls. Two balls are to be randomly selected from the box
one after another without replacement. Find the probability that
a) both balls are red
b) the first ball is white and the second ball is red
c) at least one ball is white.

Solution 7.10
4/8 R

5/9 4/8 W

5/8 R

4/9 W

3/8 W

a) P (RR) is short for the probability of picking a red ball on the first pick and then picking
another red ball on the second pick. Our picking a red ball on the first trial will not affect
or stop us from picking a red ball on the second trial. The two events are independent.

5 4
P(RR) = 9 × 8

5
= (or 0.2778)
18

4 5
b) P(WR) = 9 × 8

5
(or 0.2778)
18

c) P(at least one white ball) = 1 – P(RR)

5
= 1−
18

13
= or (0.7222 )
18

87
Activity 7.5
1. Distinguish between independent events and mutually exclusive events.
2. John and Mary work in town at the same company. Mary travels to work by bus while
John cycles. The probabilities that John and Mary arrive late for work on a Friday is
0.35 and 0.46 respectively. Find the probability that both arrive late for work on the
Friday.

7.8 Conditional Probability

We define the probability of an event A occurring conditional upon the occurrence of event B as
the conditional probability of A given B denoted by P (A/B). Refer to the Venn diagram shown
in Figure 7.6 below.

A B S

Figure 7.6 Intersection of Two Events

If event B has occurred, there are chances that event A has also occurred as well. This is because
there is a portion of set A which falls in set B. What fraction of set B is this portion? The answer
to this question will give you the conditional probability that A occurs given that B has already
occurred. This probability is obtained by dividing the joint probability of events A and B
occurring by the probability that event B has occurred, that is,

P( A ∩ B)
P( A / B ) = for P(B) > 0 (7.6)
P( B )

Example 7.11
The probability that a firm’s stock price will increase is 0.55. The probability that the firm will
be acquired by a rival company is 0.70. If the two events are independent, find the probability
that the firm’s stock price will rise given the firm has been acquired by a large competitor.

88
Solution 7.11
Let A be the event that the firm’s stock price will increase and B be the event that the firm will
be acquired. Then you are required to find P(A/B).
P( A ∩ B)
P( A / B) =
P ( B)

0.55 × 0.70
=
0.70

= 0.55

Example 7.12
Refer to Example 7.10. What is the probability that the second ball randomly selected is red
given the first was white?

Solution 7.12
Refer to the tree diagram presented in Solution 7.10, the second branches of the tree diagram are
conditional probabilities. It can be seen that the conditional probability that the second ball is red
given the first is white is 5/8.

Activity 7.6
A loan officer at a Building Society knows that 15% of mortgage holders lose their jobs
and default on loan repayment in the course of 10 years. The officer also knows that 30%
of the mortgage holders lose their jobs during this period. Given that one of the Society’s
mortgage holders just lost his job, what is the probability that he will default on loan
repayment?

7.9 Use of Contingency Tables to Evaluate Probabilities

Example 7.13
A social analyst classified the employees of a certain organisation by gender and marital status as
follows.

Gender/Marital Status Married Not Married

Male 85 45

female 65 55

89
If an employee is to be selected at random, find the probability that the employee is

a) a female
b) female and not married
c) female or is not married
d) female given the employee is not married

Solution 7.8

Gender/Marital Status Married Not Married Total

Male 85 45 130

female 65 55 120

Total 150 100 250

a) P (employee is female) is a marginal probability obtained by expressing the number of

female employees as a fraction of the total number of all employees.

120 12
P (female) = = = 0.48
250 25

b) P (female and not married) is a joint probability obtained by finding the probability of the
intersection of the two events.

55 11
P (female and not married) = = = 0.22
250 50

c) The two events ‘female’ and ‘not married’ can occur together, hence they are non-
mutually exclusive.

P ( A ∪ B ) = P ( A or B ) = P ( A) + P ( B ) − P ( A ∩ B )

120 100 55
= + −
250 250 250

= 0.48 + 0.4 − 0.22

= 0.66

d) You are required to find the conditional probability that the employee is female given the
employee is not married.

90
 P ( female ∩ not married )
P (female/not married) =
P ( not married )

55 250
=
100 250

11
= or 0.55
20

Activity 7.7
The Zimbabwe safety council analysed road traffic accidents causing injury to
pedestrians and the type of vehicles involved in the accidents. The following data was
obtained.

Type of vehicle
Degree of injury Kombi Haulage truck Private car
Fatal 34 4 10
Serious 25 9 13
Non-serious 86 7 26

What is the probability that:

a) an injury to a pedestrian proves fatal
b) an accident involved a kombi
c) an accident involved a kombi or resulted in a non-serious injury
d) an accident involved a Haulage truck and resulted in a serious injury
e) an accident proves fatal given that it involved a haulage truck

7.10 Summary
In this unit we discussed that a probability is a numeric measure of the likelihood of a particular
outcome. It is a number between 0 and 1 inclusive, implying that a probability is never negative
or greater than 1.

There are three approaches to probability namely the judgmental approach, experimental
approach and theoretical approach. The judgemental approach is subjective because it is based
on personal opinion.

We defined mutually exclusive events as those that cannot happen simultaneously while
independent events are those that are not related such that the occurrence of one event will not
affect or stop the occurrence of the other events. We looked at rules for calculating probabilities
for a composition of events.

You also learnt about conditional probability and the use of tree diagrams.

91
References
Aczel, A.D. and Sounderpandian, J. (2005). Complete Business Statistics. India: Tata McGraw-
Hill.

Buglear, J. (2005). Quantitative Methods for Business. London: Elsevier Butterworth

Heinemann.

Kazmier, L.J. (2003). Schaum’s Easy Outline: Business Statistics. Blacklick: McGraw-Hill
Trade.

Kemp, S.M. and Kemp, S. (2004). Business Statistics Demystified. Blacklick: McGraw-Hill
Proffessional Publishing.

Muchengetwa, S. (2005). Business Statistics. Harare: Zimbabwe Open University.

Wegner, T. (1999). Applied Business Statistics. Cape Town: Juta and Co.

92
BLANK PAGE
 Unit 8

Discrete Probability Distributions

8.1 Introduction
In this unit, we will discuss probability distributions for discrete random variances. In unit 1, we
were able to distinguish between a discrete random variable and a continuous random variable.
You will learn about how to find expectation and variance of a discrete random variable. You
will solve problems involving the Binomial and Poisson probability distributions.

8.2 Unit Objectives

By the end of the unit, you should be able to:
• define a probability distribution
• find the probability distribution for a random variable
• calculate the mean, variance and standard deviation of a random variable
• find the mean of a function of a random variable
• solve problems involving the Binomial probability distribution
• solve problems involving the Poisson probability distribution

8.3 Probability Distribution

A probability distribution shows all possible outcomes of an experiment and how probable each
type of outcome is. It is defined as a rule that assigns probabilities to the different values of a
random variable. It can be presented as a probability formula or just a table listing the possible
values of X alongside their associated probabilities.

Example 8.1
A fair coin is tossed twice. Let X be the number of heads obtained. Find the probability
distribution of X.

Solution 8.1
The sample space, S = {HH, HT, TH, TT}. The possible values of X are:
• x = 0, when the outcome is TT. Therefore P (X = 0) = P (TT) = 1/4
• x = 1, when the outcome is either HT or TH giving P( X = 1) =2/4 = 1/2
• x = 2, when the outcome is HH giving P( X = 2) = 1/4

93
The probability distribution of X is summarised in the following table:

x 0 1 2
P (X = x) 1/4 1/2 1/4

Example 8.2
The numbers of cars sold per day by a car dealer over the past 30 days are as follows:

No. of cars per day, x 0 1 2 3

No. of days 12 6 9 3

Find the probability distribution of the number of cars sold per day.

Solution 8.2
The probabilities of the different values of X are calculated as follows:
12
P ( X = 0) = = 0.4
30

6
P ( X = 1) = = 0.2
30

9
P ( X = 2) = = 0.3
30

3
P( X = 3) = = 0.1
30

The probability distribution of X is tabled below.

No. of cars sold per day, x 0 1 2 3

P (X = x) 0.4 0.2 0.3 0.1

Activity 8.1
A coin is biased such that a head is 3 times as likely to occur as a tail. If the coin is tossed
twice, find the probability distribution for the number of tails obtained.
The probability distribution of a discrete random variable, X, must satisfy the following
conditions:
1. (0 ≤ P ( X = x ) ≤ 1 for all values of x
2. ∑ all x P ( X = x ) = 1
You can verify whether or not a given distribution is a probability distribution by testing
that the conditions are satisfied.

94
Example 8.3
Refer to Example 8.2. Verify that P(X = x) is a probability distribution.

Solution 8.3
All the probabilities for possible values of x are greater than 0 but less than 1 and

P ( X = 0) + P ( X = 1) + P ( X = 2) + P ( X = 3) = 0.4 + 0.2+ 0.3 + 0,1 = 1

Clearly, both conditions are satisfied, therefore P(X = x) is a probability distribution.

Example 8.4
The probability distribution for a random variable X is:

x 0 1 2 3 4

P (X = x) 0.05 0.35 0.5 a 0.02

Find the value of a.

Solution 8.4

For a probability distribution ∑ P( X = x) = 1 .

all x

0.05 + 0.35 + 0.5 + 0.02 + a = 1

0.92 + a = 1

a = 0.08

Activity 8.2
The probability distribution of a random variable is tabled below:

x 0 1 2 3 4

P (X = x) 0.05 0.25 2p p 0.1

Find the value of p.

95
8.4 Probability Bar Graph
A probability distribution for a discrete random variable can be presented graphically in the form
of a probability bar graph. The bars are centred at each possible value of x. The heights of the
bars represent corresponding probabilities for values of x.

Example 8.5
Refer to Example 8.1. The probability distribution for the number of heads obtained when a fair
coin is tossed twice was summarised as:

x 0 1 2

P (X = x) 1/4 1/2 1/4

Represent the probability distribution on a probability bar graph.

Solution 8.5

P(X=x)

0 1 2 x

Figure 8.1 A Bar Graph Showing a Discrete Probability Distribution

Activity 8.3
Construct a probability bar graph to represent the probability distribution in Example 8.2.

8.5 Cumulative Probabilities

The probability that a discrete random variable takes a particular value or a lower value gives a
cumulative probability. The cumulative probability associated with a particular value of X is

96
obtained by taking the probability that X takes that value and adding the probability that X takes
a lesser value.

Example 8.6
Refer to example 8.2. The probability distribution of the number of cars sold per day was found
to be:

No. of cars sold per day, x 0 1 2 3

P (X = x) 0.4 0.2 0.3 0.1

a) Find cumulative probabilities for the distribution.

b) Hence, find
i. P ( X ≤ 1)
ii. P ( X > 2)

Solution 8.6
a)
No. of cars sold per day, x 0 1 2 3

P (X = x) 0.4 0.2 0.3 0.1

P( X ≤ x) 0.4 0.6 0.9 1.0

b) (i) P ( X ≤ 1) = 0.6

(ii) P ( X > 2) = 1 − P ( X ≤ 2)

= 1− 0.9

= 0.1

97
Activity 8.4
1. The numbers of defective items coming off a production line together with the
associated probabilities are as given below:

x 0 1 2 3

P (X = x) 0.10 0.30 0.45 0.15

a) Find the cumulative probability distribution of the data

b) Hence, find
i. P ( X ≤ 2)
ii. P ( X > 1)
2. The cumulative probability distribution of a random variable X is as follows:

x 0 1 2 3 4

P( X ≤ x) 0.05 0.4 0.9 0.98 1

Find the probability distribution of X.

8.6 Expectation of a Random Variable

Given a probability distribution, we can find summary measures to represent the distribution.
One such measure is the expectation or mean. Let X be a discrete random variable. The
expectation of X, denoted by E(X), is found by multiplying each value of X by its probability
and then adding up the products, that is,

µ = E ( X ) = ∑ all x xP ( X = x )
(8.1)

The mean is in fact a weighted average of the possible values of X – the weights being the
probabilities.

Example 8.7
Let X be a discrete random variable with the following probability distribution

x 0 1 2

P (X = x) 0.25 0.5 0.25

Find the expectation of X.

98
Solution 8.7

E ( X ) = ∑ all x xP ( X = x)

= 0(0.25) + 1(0.5) + 2(0.25)

= 0 + 0.5 + 0.5

=1

Example 8.8
By investing in a particular stock for one year, Mr Munzara hopes to make a profit of $100,
$400, $500, or $1 000 with probabilities 0.4, 0.3, 0.18, or 0.12 respectively. What is his expected
profit?

Solution 8.8
The probability distribution is summarised in the following table:

x 100 400 500 1 000

P (X = x) 0.4 0.3 0.18 0.12

E ( X ) = 100(0.4) + 400(0.3) + 500 (0.18) + 1000(0.12)

= 40 + 120 + 90 + 120

= 370

His expected profit is $370

Activity 8.5
Find the mean of the probability distribution in Example 8.2, hence find the probability
that on a given day the number of cars sold is above the average.

8.6.1 Mean of a function of a random variable

Let h(X) be a function of the discrete random variable X. The expected value of h(X) is given
by:

E[h( X )] = ∑ h( x) P( X = x)
all x
(8.2)

99
Example 8.9
Let X be a discrete random variable with the following probability distribution:

x 0 1 2 3

P (X = x) 0.25 0.4 0.1 0.25

Find
a) E (X)
b) E (2X)
c) E (2X – 1)

Solution 8.9

x 0 1 2 3

2x 0 2 4 6

2x – 1 -1 1 3 5

P( X= x) 0.25 0.4 0.1 0.25

a) E ( X ) = ∑ xP( X = x)
all x

= 0(0.25) + 1(0.4) + 2(0.1) + 3(0.25)

= 0 + 0.4 + 0.2 + 0.75

= 1.35

b) E (2 X ) = ∑ 2 xP( X = x)

= 0(0.25) + 2(0.4) + 4(0.1) + 6(0.25)

= 0 + 0.8 + 0.4 + 1.5

= 2.7

You should note that E ( 2 X ) = 2 E ( X ) .

100
 c) E (2 X − 1) = ∑ (2 x − 1) P( X = x)

= −1(0.25) + 1(0.4) + 3(0.1) + 5(0.25)

= 1.7

You should note again that E ( 2 X − 1) = 2 E ( X ) − 1 . This is not by coincidence. In general, the
expected value of a linear function of a random variable is given by:

E ( aX + b ) = aE ( X ) + b (8.3)

Activity 8.6
The number of wooden chairs made per month by a backyard carpentry shop is a random
variable with the following probability distribution.

x 29 30 31 32

P (X = x) 0.4 0.3 0.2 0.1

a) Find the probability that the number of chairs that will be made next month is at
least 30.
b) Obtain the cumulative probability distribution; hence find the probability that the
number of chairs produced per month is at most 31.
c) Find the expected number of chairs produced per month.
d) Suppose that the carpentry shop incurs fixed monthly costs of $100 and an
additional construction cost of $5 per chair. Find the expected monthly cost of
the operation.

8.7 Variance and Standard Deviation of a Random Variable

The variance of a random variable is the expected squared deviation of the random variable from
its mean. It is given by the following formula:

σ 2 = ∑ ( x − µ ) 2 P( X = x)
all x
(8.4)

However, the following formula is user friendly and therefore preferred in computations.

σ 2 = Var ( X ) = E ( X 2 ) − [ E ( X )] 2 (8.5)

The standard deviation, σ , is then found by taking the positive square root of the variance.

101
Example 8.10
Find the variance and standard deviation of the distribution in Example 8.1.

Solution 8.10

x 0 1 2

P (X = x) 0.25 0.5 0.25

E ( X 2 ) = ∑ x 2 P( X = x)
all x

= 0 2 (0.25) + 12 (0.5) + 2 2 (0.25)

= 0 + 0.5 + 1

= 1.5

The mean, E(X), was found in Example 8.7 to be 1. Therefore

σ 2 = Var ( X ) = E ( X 2 ) − [ E ( X )] 2

= 1.5 − 12

= 0.5

Standard deviation = 0.5

= 0.707106781

≈ 0.7071

102
Activity 8.7
Returns on a certain business venture, to the nearest $1 000, are known to follow the
probability distribution shown below.

x -2 000 -1 000 0 1 000 2 000 3 000

P(X = x) 0.1 0.1 0.2 a 0.3 0.1

a) Determine the value of a.

b) Find the probability that the business venture
i. makes a loss
ii. realise profits of at least $2 000.
c) Find the expected earnings and standard deviation of earnings for the business
venture.
d) Is the venture likely to be successful? Explain.

8.8 Binomial Probability Distribution

The distribution is used to model experiments which consist of a series of finite trials that take
place repeatedly, each with only two possible outcomes. By convention, one of these outcomes is
referred to as ‘success’; the other as ‘failure’.

The properties of a binomial experiment are:

• the experiment consists on n repeated trials

• each trial results in two possible outcomes which are mutually exclusive
• the probability of success(p) remains constant from trial to trial
• the repeated trials are independent
• the variable of interest is the number(x) of successes observed during the n trials

Let X be number of successes in n-trials of a binomial experiment each with probability p. Then
X is a binomial random variable with probability distribution given by:

n
P ( X = x) =   p x (1 − p ) n − x for x = 0, 1, 2,… n. (8.6)
 x

A binomial random variable is completely described by specifying the two parameters, n and p.
We write X~ B (n, p) to show that X is binomially distributed with n number of trials and
probability of success p in each trial.

The mean and variance of a binomial random variable depends on the two parameters n and p.

103
 Let X~ B (n, p), then

E(X) = n p (8.7)

Var(X) = n p (1 – p) (8.8)

Example 8.11
A new drug for a rare disease is known to be effective in 70% of the cases treated. Six patients
suffering from the disease are to be treated.

a) Find the probability that

i. 4 patients will be successfully treated

ii. at least 2 patients will be successfully treated

b) Find the mean and variance of the number of patients successfully treated.

Solution 8.11
Let X be the number of successfully treated patients, then X ~ B (6, 0.70)
n
P ( X = x) =   p x (1 − p ) n − x
 x

6
a) (i) P( X = 4) =   × 0.70 4 × 0.30 6−4
 4

6
=   × 0.70 4 × 0.30 2
 4

= 0.324135
≈ 0.3241

(ii) P ( x ≥ 2) = 1 − P ( X < 2)

= 1 − [ P ( X = 0) + P ( X = 1)]

6 6
= 1 − [  × 0.70 0 × 0.30 6 +   × 0.701 × 0.30 5 ]
0 1 

= 1 − [0.000729 + 0.010206 ]

= 1− 0.010935

= 0.989065

≈ 0.9891

104
 b) E ( X ) = n p = 6 × 0.70 = 4.2

Var ( X ) = n p (1 − p )

= 6 × 0.70 × 0.30

= 1.26

∴ standard deviation = 1.26

= 1.122497216

≈ 1.1225

Example 8.12
A ZOU Bachelor of Commerce graduate is applying for 5 jobs and believes that he has a
constant and independent 0.6 probability of getting an offer in each of the application. What is
the probability that he will have:

a) no offers at all
b) at least 4 offers
c) fewer than 4 offers

Solution 8.12
Let X be number of successful offers. X ~ B (5, 0.6)
5
a) P( X = 0) =   × 0.6 0 × 0.4 5
0

= 0.01024

≈ 0.0102

b) P ( X ≥ 4) = P ( X = 4) + P ( X = 5)

5  5
=   × 0.6 4 × 0.41 +   × 0.6 5 × 0.4 0
 4 5

= 0.2592 + 0.07776

= 0.33696

c) The use of the binomial formula here involves finding the probabilities that X = 0, X = 1,
X = 2 and X = 3 and then adding up the probabilities to find P (X < 4). This process may
take quite some time and it is recommended that you make use of binomial tables which

105
 are attached in the appendices. The tables give cumulative binomial probabilities for
selected n and p values.

Here n = 5, p = 0.6 and k = 3

∴ P ( X < 4) = P ( X ≤ 3) = 0.663

Activity 8.8
1. In a world cup soccer match, the teams have remained deadlocked after extra time. To
decide the winner, a team is to take 5 penalty kicks each. If 30% of all penalties taken
in previous world cup matches are known to be scored, what is the probability that a
team will:
a) score all 5 penalties?
b) score not less than 3 penalties?
c) fail to score all penalties?
2. Two in 10 viewers can associate a particular piece of music with the product it is used
to promote in an advertisement campaign.
a) Calculate the probability that in a group of 6 people:
i. none will recognise it
ii. more than half will recognise it
b) Find the:
i. expected number of viewers, and
ii. standard deviation of viewers who will recognise the piece of music

8.10 Poisson Probability Distribution

The Poisson Distribution is used to model events that can happen over a period of time or space.
It allows us to find the probability that a specific number of incidents happen over a particular
period. Examples of events that can be modelled by the Poisson distribution are:

• the number of phone calls received per hour by an operator

• the number of patients admitted at a hospital per day
• the number of deaths occurring per day due to a cholera outbreak
• the number of typing errors per page of a manuscript

The conditions for a Poisson distribution are as follows:

1. there is no fixed number of trials

2. the mean number of events λ is known
3. The variable of interest is a discrete number of occurrences per unit time/space.

106
The Poisson distribution is specified by one parameter, that is, the mean λ . Let X be a Poisson
distributed random variable with mean λ , then the probability that the variable X takes a
particular value x is given by:

e −λ λx
P( X = x) = for x = 0, 1, 2, … (8.9)
x!

The mean and variance of X are both equal to λ . We write X ~ P0 (λ) to show that X follows the
Poisson probability distribution with mean λ.

Example 8.13
The mean number of vehicle accidents per day at a busy road intersection is 2. Find the
probability that:
a) no accident occurs in a given day
b) at least 2 accidents occur in a given day
c) exactly 3 accidents occur in a period of two days

Solution 8.13
Let X be the number of accidents, then X ~ P0 (2).
e −λ λx
P( X = x) =
x!

a) no accident implies x takes the value 0

e −2 2 0
P ( X = 0) =
0!

= 0.135335283
≈ 0.1353

b) At least 2 accidents means 2 or 3 or 4 or … up to infinity since there is no fixed number of

trials. The probability is evaluated using the complement rule, that is:

P ( X ≥ 2) = 1 − P ( X < 2 )

= 1 − [ P ( X = 0) + P ( X = 1)]

e −2 2 0 e −2 21
=1−[ + ]
0! 1!

= 1 − [0.135335283 + 0.270670566 ]
= 1− 0.406005849
= 0.59399415
≈ 0.5940

107
c) The reference period is now 2 days, therefore the mean becomes 2 x 2 = 4 so that X ~ P0 (4).

e −4 4 3
P( X = 3) =
3!

= 0.195366814
≈ 0.1954

Example 8.14
Mary makes on average 0.5 errors on each page she types. What is the probability that in a
chapter of 8 pages she makes
a) no mistakes?
b) no more than 4 mistakes?

Solution 8.14
Let X be the number of typing errors. If the average is 0.5 per page, then in 8 pages the average
would be 8 x 0.5 = 4.

Now X ~ P( 4)
e −410 0
a) P ( X = 0) =
0!
= 0.018315638

≈ 0.0183

b) P ( X ≤ 4) = P ( X = 0) + P ( X = 1) + P ( X = 2) + P ( X = 3) + P ( X = 4)

Since the calculations here are long and laborious, it is advisable to use Poisson tables found in
the appendices. The tables give cumulative Poisson probabilities.

The expected value λ = m = 4 and x = c= 4 giving P ( X ≤ 4) = 0.629 .

Activity 8.9
1. The mean number of car thefts in Harare is 3 per month. What is the probability that a
month passes when there are
a) no car thefts?
b) More than 2 thefts?
c) 4 or fewer car thefts?
2. A rural district hospital admits on average 2 patients per week for malaria treatment.
Find the probability that
a) 3 patients are admitted per week for malaria treatment
b) at most 5 patients are admitted per week for malaria treatment
c) at least 10 patients are admitted per month for malaria treatment.

108
8.11 Summary
Discrete random variables are those that can assume a countable number of values. In this unit,
we calculated the mean and variance of a discrete random variable when given the probability
distribution. We defined a probability distribution as a rule that assigns probabilities to the
different values of a random variable.

We also looked at the binomial and Poisson probability distributions. The binomial distribution
is used to model experiments which consist of a series of finite trials that occur repeatedly, each
with only two possible outcomes while the Poisson distribution is used to model events that can
happen over a period of time or space.

109
References
Aczel, A.D. and Sounderpandian, J. (2005). Complete Business Statistics. India: Tata McGraw-
Hill.

Buglear, J. (2005). Quantitative Methods for Business. London: Elsevier Butterworth

Heinemann.

Kazmier, L.J. (2003). Schaum’s Easy Outline: Business Statistics. Blacklick: McGraw-Hill
Trade.

Kemp, S.M. and Kemp, S. (2004). Business Statistics Demystified. Blacklick: McGraw-Hill
Proffessional Publishing.

Muchengetwa, S. (2005). Business Statistics. Harare: Zimbabwe Open University.

Wegner, T. (1999). Applied Business Statistics. Cape Town: Juta and Co.

110
 Unit 9

Statistics List of Formulae

9.1 Sampling Methods

Sampling ratio k in systematic sampling

N
k= (2.1)
n

9.2 Methods of Displaying Data

no. of study units in category

Angle of sector = × 360 0
total no. of study units (4.1)

9.3 Measures for Describing Ungrouped Data

9.3.1 Measures of Central Tendency

Median

a. y n +1 if n is odd (5.1)
2

1
b. ( y n + y n + 2 ) if n is even. (5.2)
2 2 2

1 N
Population mean, µ =
N
∑x
i =1
i (5.3)

1 n
Sample mean, x = ∑ xi
n i =1
(5.4)

9.3.2 Measures of position

The position of the pth percentile is given by:

(n + 1) p (5.5)
100

111
9.3.3 Measures of dispersion
Range = highest observed value – lowest observed value (5.6)

Interquartile range = Q3 − Q1 (5.7)

Semi- interquartile range = Q3 − Q1 (5.8)

2

1  n 2 1  n  
2

Sample variance s = ∑ xi − n  ∑
2

n − 1  i =1 i =1
xi 
 
(5.9)

 N 2

Population variance σ 2 = 1  ∑ xi2 − 1  ∑ xi  
N
(5.10)
N  i =1 N  i =1  

Coefficient of variation (CV) = s × 100 (5.11)

x

9.4 Measures for Describing Grouped Data

Sturges formula k = 1+ 3.322 log n (6.1)

9.4.1 Measures of Central Tendency

k

∑fx i i

Mean =
i =1
k

∑f
i =1
i (6.2)

Cm ( n 2 − Fm −1 )
Median = Lm +
fm (6.3)

C m ( f m − f m−1 )
Mode = Lm +
2 f m − f m −1 − f m+1 (6.4)

112
9.4.2 Measures of Position

Cq ( n 4 − Fq −1 )
Lower quartile, Q1 = Lq +
fq
(6.5)

Cq (3n 4 − Fq −1 )
Upper quartile, Q3 = Lq +
fq
(6.6)

kn
Cp ( − F p −1 )
Pth percentile Pk = L p + 100
fp
(6.7)

9.4.3 Measures of Dispersion

1 (∑ f i xi ) 2
Population variance σ2 = (∑ f i xi2 − ) (6.8)
N N

1 (∑ f i xi ) 2
Sample variance 2
s = (∑ f i xi −
2
) (6.9)
n −1 n

9.5 Introduction to Probability

n( E )
Probability of an event, P( E ) =
n( S ) (7.1)

Rule of compliments P ( A ) = 1 − P ( A) (7.2)

Addition rule for non-mutually exclusive events:

P ( A ∪ B ) = P ( A or B ) = P ( A) + P ( B ) − P ( A ∩ B ) (7.3)

Addition rule for mutually exclusive events:

P ( A ∪ B ) = P ( A or B ) = P ( A) + P ( B ) (7.4)

Product Rule for independent events

P ( A ∩ B ) = P ( A and B ) = P ( A) × P ( B ) (7.5)

113
Conditional Probability

P( A ∩ B)
P( A / B) = P( B) > 0 (7.6)
P( B )

9.6 Discrete Probability Distributions

Expectation of a discrete random variable X

µ = E ( X ) = ∑ all x xP ( X = x )
(8.1)

Expectation of a function of a random variable

E[h( X )] = ∑ h( x) P( X = x)
all x (8.2)

Expected value of a linear function of a random variable

E ( aX + b ) = aE ( X ) + b
(8.3)

Variance of a discrete random variable

σ 2 = Var ( X ) = E ( X 2 ) − [ E ( X )] 2 (8.4)

Binomial probability distribution

n
P ( X = x) =   p x (1 − p ) n − x for x = 0, 1, 2,… n. (8.5)
 x

If X~ B (n, p), then

E(X) = n p (8.6)

Var(X) = n p (1 – p) (8.7)

Poisson probability distribution

e −λ λx
P( X = x) = for x = 0, 1, 2, … (8.8)
x!

If X~ Po( λ ), then the mean and variance of X both equal to λ (8.9)

114
Appendices

Statistical Tables

115
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117
118
119
120
121