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Applied Statistical Methodology for research business

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1. Binomial distribution

A binomial distribution is a type of probability distribution that summarizes the

probabilities that a specific amount would take one of two independent values in response to a

specific event, set of variables, or collection of characteristics, claims a study that was published

in a scholarly journal. The binomial distribution is based on the idea that each test has a distinct

outcome, and as a result, each test is either independent of the others or cannot happen at the

same time. The binomial distribution is one of the most prevalent discrete distributions in

statistics. This contrasts with continuous distributions, which are more typical and include the

normal distribution. Since the binomial distribution only counts one of two outcomes based on

the trials that are reflected in the data—a 1 (for success) or a 0 (for failure)—it differs from the

normal distribution (for failure). The binomial distribution differs from the normal distribution

due to this (for failure). The binomial distribution also shows x, it’s trial success probability (n),

and a trial success probability for each trial separately (p).

a.)

The mean and standard deviation of the binomial distribution is (p) and (p(1-p)/n),

respectively, according to a Stattrek article from 2022. When p=0.5 or n is large, a binomial

distribution is considered to have a symmetrical structure.

b.)

Understanding that the mean of the distribution (x) equals n*P, the variance (2x) equals

n*P*(1-P), and the standard deviation (x) is computed by sqrt [n *P * (1 - P)], one may calculate

the standard deviation (x). is indispensable for locating the mean of the binomial distribution

(StatsDirect, 2021).
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c.)

According to the Corporate Finance Institute study, there are several types of binomial

distribution trials (2020). The first consists of fixed trials, such as coin flip, with the total number

of trials recorded since the beginning. Each of the ten-coin tosses is considered an experiment.

Second, there are independent trials in which the initial event, such as a coin flip, is thought to be

independent of subsequent events. Additional independent tests include rolling dice or tossing

coins. Third, there is a set chance of success, as evidenced by the fact that the likelihood of

receiving a head when flipping a coin is roughly 0.5 and the projected number of heads after 50

attempts is 25. (50x0.5).

2. Exercise 66

Problem

a.)

(Probability of Defective) P (D) = 1% = 0.01%

(Probability of Non-Defective) P (D’) = 1-1% = 0.99

P (A) = 5co (0.01)0(0.99)5 + 5c1(0.01)1(0.99)4

(0 defective) (1 defective)

P (A) = 0.959 = 95.9%

b.)

(Probability of Defective) P (D) = 1% = 0.01%

(Probability of Non-Defective) P (D’) = 1-1% = 0.99

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P (A) = 5co (0.01)0(0.99)5 + 5c1(0.01)1(0.99)4

(0 defective) (1 defective)

P (A) = 0.998 = 99.8%

c.)

(Probability of Defective) P (D) = 1% = 0.01%

(Probability of Non-Defective) P (D’) = 1-1% = 0.99

P (A) = 5co (0.01)0(0.99)5 + 5c1(0.01)1(0.99)4 + 5c2(0.01)2(0.99)3

(0 defective) (1 defective) (2 defective)

P (A) = 0.998 = 99.8% (1 defective)

P (A) = 1,017 = 101.7% (2 defectives)

3.

a.)

The hypothesis is validated in the first variety of sign tests, which is referred to as a one-

sample test. In this test, a data sample is taken from the situation at hand, and it focuses on the

positive and negative signs as random variables of equal size. The paired sample test is an

alternative to the paired t-test that makes use of the plus and minus signals in the paired sample

testing or the offered before-after study. In comparison, the paired t-test is described as an

alternative to the paired sample test. The population means are the same as the sample means, or

the null hypothesis is expressed with - and + signs of equal magnitude (Statistics Solution, 2021).
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b.)

According to Zach's article, the directional hypothesis is more often known as an

alternative hypothesis that includes either "less than" (marked by the sign "") or "greater than"

(represented by the sign ">"). (2021). On the other hand, the non-directional hypothesis is an

original hypothesis that incorporates the not equal clause (denoted by the sign "≠").

4.

a.)

Ho = ($200,000 is the median price in the metropolitan area)

H1= (The median price in the metropolitan area is not $200,000)

The goal of the hypothesis is to compare two opposing ideas: one suggests that the

metropolitan area is worth $200,000, while the second suggests that it is not. The t-test is used to

design the test, and it considers the information that is supplied as well as the fact that the groups

are divided into three different categories in order to evaluate the hypothesis that has been

offered.

The statistical test is known as the T-test

The groups have been subdivided into three sections, which have been given the names

groups 1&2, groups 1&3, and groups 2&3. This is because the t-test being conducted uses a very

large number of samples, which is the reason for this result. In addition, the value of alpha,

which was formerly 0.05 and will now be 0.0166 when the groups for the t-test are separated into

three equal groups, will change.

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b. Determine whether the metropolitan area's median price is higher than $200,000 by applying

the formulas ȳ 1=13, ȳ 2=1, and ȳ 3 =27.

The figures that represent the average for each number of homes included in the table are shown

up top. The value denoted by the symbol x is the average of all the numbers found in the

columns that have been chosen.

Ho: the median price of a home in the metropolitan region is greater than $200,000,

Ha: the median price of a home in the metropolitan area is less than $200,000 respectively.

The purpose of this hypothesis is to compare the opinion that the metropolitan area has a

median household income of more than $200,000 with the opposite viewpoint, which is

irreconcilable with the question that was presented. The t-test is used to design the test, and it

considers the information that is supplied as well as the fact that the groups are divided into three

different categories in order to evaluate the hypothesis that has been offered.

The statistical test is known as the T-test

The groups have been subdivided into three sections, which have been given the names groups

1&2, groups 1&3, and groups 2&3. This is because the t-test being conducted uses a very large

number of samples, which is the reason for this result.

In addition, the value of alpha, which was formerly 0.05 and will now be 0.0166 when the

groups for the t-test are separated into three equal groups, will change.

5. Regression Analysis y=mx+b+ ε

a) The regression model has found significant use in a variety of different fields of study. The

equation reads as follows: y=mx+b+ ε , with y serving as the dependent variable and x playing
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the role of the independent variable. There is an indication of the coefficient of the slope, which

is marked by m, the random error term, which is denoted by b, and the intercept, which is shown

by y.

Currently, the equation of regression establishes a connection between the annual rate of

return on a security and the rate of return on the market. The accuracy of the model was

evaluated by a series of comparisons to other market indicators, such as the data on Walmart's

security system and the Standard and Poor's 500. More specifically, the testing focused on the

following hypothesis:

b.)

c.)
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d.)

There is no significance between the yearly rate of return on securities and the market return rate.

H1: There is a significant relationship between the annual rate of security and the market rate of

return)

scatterplot with regression line

security rate of return(walmart)

0.7
0.6
0.5
0.4
0.3
f(x) = 0.692347365824118 x 0.2
+ 0.0252606057837984
0.1
0
-0.5 -0.4 -0.3 -0.2 -0.1 -0.1 0 0.1 0.2 0.3 0.4
-0.2
-0.3
market rate of return(Dow jones)

According to the above scatterplot, the annual rate of return of the security increases as the

annual rate of return of the market increases, and vice versa.

Regression Statistics
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Multiple R 0.652189

R Square 0.42535

Adjusted R

Square 0.393425

Standard Error 0.137039

Observations 20

r demonstrates a positive correlation between the market and security rate of return (0.65). The

regression model explains a staggering 39.34% of the variance in the data.

ANOVA

Significanc

  df SS MS F eF

0.2502

Regression 1 0.25021 1 13.32341 0.001831

0.0187

Residual 18 0.338035 8

Total 19 0.588245      

Since the p-value for the regression model is less than 0.05, it is shown to be significant in the

ANOVA table above: F(1,18)=13.32,p=0.0018.

Coefficient Standar Lower Upper

  s d Error t Stat P-value 95% 95%

Intercept 0.025261 0.032843 0.769134 0.451789 -0.04374 0.094261

X Variable 1 0.692347 0.189678 3.650125 0.001831 0.293849 1.090845

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The statistical significance of X's coefficient is proven because the p-value (0.001) is smaller

than 0.05. Because the p-value (0.45) is greater than 0.05, the y-intercept is not statistically

significant. As a result, the regression model is Y=0.692347X.

Where y is the annual rate of return for Walmart security and x is the annual rate of return for SP

500 industrial market.

Normal Probability Plot

0.8
0.6
0.4
0.2
Y

0
-0.2 0 20 40 60 80 100 120
-0.4
Sample Percentile

The distribution of residuals is normal, as shown by the normal probability diagram above.

f.)

The regression model demonstrates that there is a sufficient connection between the two

variables. The rate of return offered by the market has a positive impact on the rate of return

offered by the security.

g.)

The rate of return offered by the market has a positive impact on the rate of return offered by the

security.
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h.)

Because the data from the graph suggest that the line's height is changing rather than

remaining constant, the first condition, which is the sufficiency check in the regression analysis,

is not satisfied with the data that has been provided. This is because the sufficiency check is part

of the regression analysis. One of the findings of the research has been verified, and that is that

there has been a substantial change in the data set in question in comparison to the outcomes of

the previous year.

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References

Anas, M. R., & Nugroho, A. B. (2017). Unusual Market Activity (UMA) And Its Impact On

Indonesia Market Return Period 2017. Proceedings of the 2nd International Research

Confrence on Management and Business. School of Business and Management ITB.

Antunes, J., Meireles, A. R., Sanfelici, A., & Garcia, R. (2020). THE EFFECTS OF FIRM SIZE

ON RISK AND RETURN IN THE BRAZILIAN STOCK MARKET: A SECTORAL

ANALYSIS. Finance & Accounting Research Journal, 2(1), 38-44.

Bali, T. G., Hu, J., & Murray, S. (2019). Option implied volatility, skewness, and kurtosis and

the cross-section of expected stock returns. Georgetown McDonough School of Business

Research Paper.

Gupta, R., Pierdzioch, C., Selmi, R., & Wohar, M. E. (2018). Does partisan conflict predict a

reduction in US stock market (realized) volatility? Evidence from a quantile-on-quantile

regression model☆. The North American Journal of Economics and Finance, 43, 87-96.