Evans TB Businessanalytics03 9781292339009

TEST BANK
PAOLO CATASTI
Virginia Commonwealth University
BUSINESS A NALYTICS
THIRD EDITION, GLOBAL EDITION
James R. Evans
University of Cincinnati
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ISBN-13: 978-1-292-33900-9
ISBN-10: 1-292-33900-4
Business Analytics, 3e, Global Edition (Evans)
Test Bank - Table of Contents
Chapter 1: Introduction to Business Analytics 29

Chapter 1: Appendix A1 Basic Excel Skills 61
Chapter 2: Database Analytics 75
Chapter 3: Data Visualization 113
Chapter 4: Descriptive Statistics 143
Chapter 5: Probability Distributions and Data Modeling 201
Chapter 6: Sampling and Estimation 247
Chapter 7: Statistical Inference 275
Chapter 8: Trendlines and Regression Analysis 311
Chapter 9: Forecasting Techniques 353
Chapter 10: Introduction to Data Mining 383
Chapter 11: Spreadsheet Modeling and Analysis 405
Chapter 12: Simulation and Risk Analysis 451
Chapter 13: Linear Optimization 493
Chapter 14: Integer and Nonlinear Optimization Models 551
Chapter 15: Optimization Analytics 593
Chapter 16: Decision Analysis 631
Copyright © 2021 Pearson Education Ltd.

Chapter 1: Introduction to Business Analytics
1) Descriptive analytics:
A) can predict risk and find relationships in data not readily apparent with traditional analyses.
B) helps companies classify their customers into segments to develop specific marketing
campaigns.
C) helps detect hidden patterns in large quantities of data to group data into sets to predict
behavior.
D) can use mathematical techniques with optimization to make decisions that take into account
the uncertainty in the data.
Answer: B
Diff: 1
Blooms: Remember
Topic: Descriptive, Predictive, and Prescriptive Analytics
LO1: Illustrate examples of descriptive, predictive, and prescriptive analytics.
2) A manager at Gampco Inc. wishes to know the company's revenue and profit in its previous
quarter. Which of the following business analytics will help the manager?
A) prescriptive analytics
B) normative analytics
C) descriptive analytics
D) predictive analytics
Answer: C
Diff: 1
Blooms: Apply
AACSB: Analytic Skills
LO1: Explain the difference between descriptive, predictive, and prescriptive analytics.
3) Predictive analytics:
A) summarizes data into meaningful charts and reports that can be standardized or customized.
B) identifies the best alternatives to minimize or maximize an objective.
C) uses data to determine a course of action to be executed in a given situation.
D) detects patterns in historical data and extrapolates them forward in time.
Answer: D
Diff: 2
Blooms: Remember

2 Chapter 1 Introduction to Business Analytics Business Analytics, 3e
4) A trader who wants to predict short-term movements in stock prices is likely to use
analytics.
A) predictive
B) descriptive
C) normative
D) prescriptive
Answer: A
Diff: 1
Blooms: Apply
LO1: Explain the difference between descriptive, predictive, and prescriptive analytics.
5) Which of the following questions will prescriptive analytics help a company address?
A) How many and what types of complaints did they resolve?
B) What is the best way of shipping goods from their factories to minimize costs?
C) What do they expect to pay for fuel over the next several months?
D) What will happen if demand falls by 10% or if supplier prices go up
5%? Answer: B
Diff: 2
Blooms: Understand
6) The demand for coffee beans over a period of three months has been represented in the form
of an L-shaped curve. Which form of model was used here?
A) mathematical model
B) visual model
C) kinesthetic (tactile) model
D) verbal model
Answer: B
Diff: 1
Blooms: Apply
Topic: Models in Business Analytics
LO1: Explain the concept of a model and various ways a model can be characterized.
7) Decision variables:
A) cannot be directly controlled by the decision maker.
B) are assumed to be constant.
C) are always uncertain.
D) can be selected at the discretion of the decision maker.

Chapter 1: Introduction to Business Analytics Business Analytics, 3e 3
Answer: D
Diff: 2
Blooms: Understand
LO1: Define and list the elements of a decision model.
8) Identify the uncontrollable variable from the following inputs of a decision model.
A) investment returns
B) machine capacities
C) staffing levels
D) intercity distances
Answer: A
Diff: 1
Blooms: Apply
9) Which of the following inputs of a decision model is an example of data?

A) estimated consumer demand
B) inflation rates
C) costs
D) investment allocations
Answer: C
Diff: 1
Blooms: Remember
Topic: Data for Business Analytics
10) Descriptive decision models:

A) aim to predict what will happen in the future.
B) describe relationships but do not tell a manager what to do.
C) help analyze the risks associated with various decisions.
D) do not facilitate evaluation of different decisions.
Answer: B
Diff: 2
Blooms: Understand
LO1: Explain the concept of a model and various ways a model can be characterized.
11) Prescriptive decision models help:

A) make predictions of how demand is influenced by price.
B) make trade-offs between greater rewards and risks of potential losses.
C) decision makers identify the best solution to decision problems.

D) describe relationships and influence of various elements in the model.

Answer: C
Diff: 1
Blooms: Remember
LO1: Define the terms optimization, objective function, and optimal solution.
12) The manager at Soul Walk Inc., a shoe manufacturing company, wants to set a new price (P)
for a shoe model to maximize total profit. The demand (D) as a function of price is represented
as:
D = 1,500 - 2.5P
The total cost (C) as a function of demand is represented as:
C = 3,200 + 3.5D
Which of the following is a model for total profit as a function of price?
A) (1,508.75× price) - (2.5 × price2) - 8,450
B) (3.5 × price2) + 3,200 - (1925.50 × price)
C) (1,250 × price) + (5 × price2) - 8,320
D) [4521 + (4.5 × price)] × price - 9684.25
Answer: A
Diff: 3
Blooms: Apply
13) Which decision model incorporates the process of optimization?

A) predictive
B) prescriptive
C) descriptive
D) normative
Answer: B
Diff: 1
Blooms: Remember
14) Which of the following is the first phase in problem solving?

A) defining the problem
B) analyzing the problem
C) recognizing the problem
D) structuring the problem
Answer: C
Diff: 1
Blooms: Remember

Topic: Problem Solving and Decision Making

LO1: List and explain the steps in the problem-solving process.
15) Middle managers in operations:

A) develop staffing plans.
B) determine product mix.
C) develop advertising plans.
D) make pricing decisions.
Answer: A
Diff: 1
Blooms: Remember
16) The product mix is determined by the:

A) accounting staff.
B) middle managers.
C) finance managers.
D) top managers.
Answer: D
Diff: 1
Blooms: Remember
17) During which phase in problem solving is a formal model often developed?
A) analyzing the problem
B) structuring the problem
C) defining the problem
D) implementing the solution
Answer: B
Diff: 1
Blooms: Remember
18) Which of the following is true about problem solving?

A) Recognizing problems involves stating goals and objectives.
B) Analyzing the problem involves characterizing the possible decisions.
C) Decision making involves translating the results of the model in the organization.
D) Structuring the problem involves identifying constraints.
Answer: D

Diff: 2
Blooms: Understand
The manager at Goody Woods Inc., a manufacturer of wooden utensil sets, has observed that
when the company sells its sets at $240, 1,540 units are sold, and when the price is raised to
$320, demand falls to 1,220 units. Use this information to answer the following two questions.
19) Develop a linear model relating the demand for Goody Woods' units to the price.
Answer: Economic theory tells us that demand for a product is negatively related to its price.
The linear model to predict demand as a function of price is:
D = a - bP
where D is the quantity demanded, P is the unit price, a is a constant that estimates the demand
when the price is zero, and b is the slope of the demand function.
Substituting the values given in the data:

1,540 = a - (b × 240)
1,220 = a - (b × 320)
By solving the two equations, values of a and b can be found.

a = 2,500, which indicates the demand for wood units when price is zero,
b = 4, which is the slope of the demand function.
Substituting values of a and b in the linear demand prediction model:

D = 2,500 - 4P
Diff: 3
Blooms: Apply
Topic: Predictive Spreadsheet Models.
LO1: Build spreadsheet models for descriptive, predictive, and prescriptive applications.
20) Develop a prescriptive model that will help Goody Woods identify the price that maximizes
the total revenue.
Answer: Having found out the model for demand as a function of price, sales (S) can be
expressed as:
S = 2,500 - 4P
Revenue (R) = Sales x Price = (2,500 - 4P) × P = 2,500P - 4P2
Thus, Goody Woods Inc. can identify the price that maximizes the total revenue using:
R = 2,500P - 4P2
Diff: 3

Blooms: Apply
21) Decision support systems evolved from efforts to improve military operations prior to and
during World War II.
Answer: FALSE
Diff: 1
Blooms: Remember
Topic: Evolution of Business Analytics
LO1: Summarize the evolution of business analytics and explain the concepts of business
intelligence, operations research and management science, and decision support systems.
22) A deterministic model is one in which all model input information is either known or
assumed to be known with certainty.
Answer: TRUE
Diff: 1
Blooms: Remember
LO1: Explain the difference between a deterministic and stochastic decision model.
23) The complexity of a problem increases when the problem belongs to an individual rather
than a group.
Answer: FALSE
Diff: 1
Blooms: Remember
24) A goal of Korel & Marke, a dot-com company, is to gain strategic advantage over its rival
firms. How can Korel & Marke use analytics and exploit social media to accomplish this goal?
Answer: Analytics is helping businesses learn from social media and exploit social media data
for strategic advantage. Using analytics, Korel & Marke can integrate social media data with
traditional data sources such as customer surveys, focus groups, and sales data. It can also
understand trends and customer perceptions of its products; and create informative reports to
assist its marketing managers and product designers.
Diff: 2
Blooms: Understand
Topic: What is Business Analytics?
LO1: State some typical examples of business applications in which analytics would be
beneficial.

25) What are the three components of decision support systems (DSS)?
Answer: DSSs include three components:
Data management - The data management component includes databases for storing data and
allows the user to input, retrieve, update, and manipulate data.
Model management - The model management component consists of various statistical tools and
management science models and allows the user to easily build, manipulate, analyze, and
Communication system - The communication system component provides the interface
necessary for the user to interact with the data and model management components.
Diff: 2
Blooms: Remember
Topic: Evolution of Business Analytics
LO1: Summarize the evolution of business analytics and explain the concepts of business
intelligence, operations research and management science, and decision support systems.
26) Explain how data are used by accountants, economists, and operations managers.
Answer: Following are the ways data are used:
Accountants conduct audits to determine whether figures reported on a firm's balance sheet fairly
represent the actual data by examining samples (that is, subsets) of accounting data, such
Economists use data to help companies understand and predict population trends, interest rates,
industry performance, consumer spending, and international trade.
Operations managers use data on production performance, manufacturing quality, delivery times,
order accuracy, supplier performance, productivity, costs, and environmental compliance to
manage their operations.
Diff: 2
Blooms: Remember
LO1: State examples of how data are used in business.
27) Data used in business analytics need to be reliable and valid. Explain.
Answer: Sample data do not always reflect reality. People do not always behave the same when
observed, nor do they always act as they say they act. Poor data can result in poor decisions.
Hence, care must be taken when working with data, and every effort should be made to ensure
that data are sufficiently accurate.
Diff: 2
Blooms: Remember
LO1: State examples of how data are used in business.
28) Why do predictive decision models incorporate uncertainty?

Answer: The future is always uncertain. Uncertainty is imperfect knowledge of what will
happen; risk is associated with the consequences of what actually happens. Even though
uncertainty may exist, there may be no risk. However, risk is an outcome of uncertainty, though
not always. Thus, many predictive models incorporate uncertainty and help decision makers

analyze the risks associated with their decisions.

Diff: 2
Blooms: Understand
LO1: Explain the difference between uncertainty and risk.
29) Which of the following is not a challenge faced by organizations that want to develop
analytics capabilities?
A) a lack of understanding of how to use analytics.
B) competing business priorities.
C) understanding benefits versus perceived costs of analytics studies.
D) difficulty in getting good data and sharing information.
Answer: C
Diff: 1
Blooms: Remember
LO1: Explain why analytics is important in today’s business environment.
30) Prescriptive analytics:

A) summarizes data into meaningful charts and reports that can be standardized or customized.
B) identifies patterns and relationships existing in large data sets.
C) uses data to determine a course of action to be executed in a given situation.
D) detects patterns in historical data and extrapolates them forward in time.
Answer: C
Diff: 2
Blooms: Remember

Use the table below to answer the following question(s).
Fiberia Accessories, a clothing retailer, is planning to introduce a new line of sweaters as part of
the winter collection for $65 with an inventory of 1500. The main selling season is 60 days
between November and December. The store then sells the remaining units in a clearance sale at
65 percent discount. Out of the 60 main retail days, Fiberia sells the sweaters at full retail price
for only 45 days, while giving a discount of 25 percent for the remaining 15 days. The demand
functions a, and b are given as 79.5 and 1.1 respectively.
Marked Down Pricing Model for

Fiberia Accessories's new sweater
Data
Retail Price $65

Inventory 1500
Selling Season (days) 60
Days at Full Retail 45
Intermediate Markdown 25 percent
Clearance Markdown 65 percent
Demand Function
A 79.5
B 1.1
31) What is the average daily sale during the full retail sales period?
A) 15
B) 33.33
C) 8
D) 24.55
Answer: C
Diff: 2
Blooms: Apply
LO1: Illustrate examples of descriptive, predictive, and prescriptive models.
32) Calculate the total number of units sold during the full retail sales period.
A) 33.33
B) 520
C) 187.5
D) 360
Answer: D
Diff: 2
Blooms: Apply


33) Calculate the total revenue during the full retail sales period.
A) $23,400
B) $16,200
C) $2,880
D) $17,550
Answer: A
Diff: 2
Blooms: Apply
34) Calculate the daily sales during the discount sales period.
A) 39.28
B) 133.3
C) 388.13
D) 25.88
Answer: D
Diff: 2
Blooms: Apply
35) Calculate the total units sold during the discount sales period.
A) 388.13
B) 25.88
C) 133.3
D) 39.28
Answer: A
Diff: 2
Blooms: Apply
36) Calculate the total revenue during the discount sales period.
A) $4,478.91
B) $18,921.09

C) $10,042.73
D) $43,321.09
Answer: B
Diff: 2
Blooms: Apply
37) Calculate the revenue for the clearance sales period.

A) $18,921.09
B) $23,400
C) $48,871.88
D) $17,105.16
Answer: D
Diff: 3
Blooms: Apply
38) Calculate the total revenue for the new line of sweaters.
A) $59,426.25
B) $48,871.88
C) $23,400
D) $43,231.09
Answer: A
Diff: 1
Blooms: Apply

In the spreadsheet below, there is data on the price, cost, demand, and quantity produced for an
item. There are also different "what if" values that can help a manager to calculate costs and
revenue with variability in demand.
A B C
1 Profit Model
2
What-If Demand
3 Data Values
4 20,000
5 Unit Price ($) 50 40,000
6 Unit Cost ($) 25 55,000
7 Fixed Cost ($) 550,000 60,000
8 Demand 60,000 65,000
9 Quantity Produced 55,000
10
39) Which of the following is the Excel formula to determine the number of units sold?
A) =B8
B) =MIN(0,B8,B9)
C) =MIN(B8,B9)
D) =MAX(0,B8,B9)
Answer: C
Diff: 1
Blooms: Apply
40) If D is demand, P is the unit price, and c and d are constants (where d > 0 is the price
elasticity), which of the following is a nonlinear demand prediction model?
A) D = d + (c × P)
B) D = (d × P)c
C) D = cd × P
-d
D) D = cP
Answer: D
Diff: 2
Blooms: Apply

Use the chart below to answer the following two questions:
Sales Function
920
900
880
860
Gallons
840
820
800
780
760
$0$1$2$3 $4$5$6 $7$8$9$10

Price
41) What is the slope of the sales function D = a - bP?

A) 4
B) 9
C) 12
D) 17
Answer: C
Diff: 3
Blooms: Apply
42) How many gallons will be sold if the price is increased to $4.75?
A) 833.26
B) 843
C) 798.72
D) 818
Answer: B
Diff: 3
Blooms: Apply
43) What does business analytics use to help managers make better decisions?
A) data and information technology.
B) statistical analysis and quantitative methods.

C) mathematical or computer-based models.

D) all of the above.
Answer: D
Diff: 1
Blooms: Remember
LO1: Define business analytics.

Business Analytics (Evans)
Chapter 1 Appendix A1 Basic Excel Skills
1) Which of the following symbols is used to represent exponents in Excel?

A) ^
B) *
C) #
D) !
Answer: A
Diff: 1
Blooms: Remember
Topic: Excel Formulas and Addressing
LO1: Find buttons and menus in the Excel 2010 ribbon.
2) Which of the following ways would 102 × 53 / 100 - 73 be represented in an Excel

spreadsheet?
A) 10(2) * 5(3) / 100 ^ 73
B) 10(2) ^ 5(3) / 100 - 73
C) 10^2 * 5^3 / 100 - 73
D) 10*2 ^ 5*3 / 100 - 73
Answer: C
Diff: 1
Blooms: Understand
LO1: Write correct formulas in an Excel worksheet.
3) Which of the following is a difference between relative addressing and absolute addressing
when using cell formulas in Excel?
A) A relative address uses a dollar sign before either the row or column label; an absolute
address uses the ampersand symbol before either the row or column label.
B) A relative address uses a dollar sign before either the row or column label; an absolute
address uses just the row and column label in the cell reference.
C) A relative address uses just the row and column label in the cell reference; an absolute
address uses a dollar sign before either the row or column label.
D) A relative address uses only the column label in the cell reference; an absolute address uses
the row.
Answer: C
Diff: 2
Blooms: Remember
LO1: Apply relative and absolute addressing in Excel formulas.
16
Chapter 1 Appendix A1 Basic Excel Skills Business Analytics, 3e 17
Use the data given below to answer the following question(s)
Below is the spreadsheet for demand prediction of a company that sells chocolates.
A B C
Demand Prediction
1 Models
2
3 Linear Model
4 A 10,000
5 B 10
6
7 Price Demand
8 $50 9,500
9 $55 9,450
10 $45 9,550
11
4) Given that D = a-bP, where D, is demand, "a" and "b," are linear constants, and P, is price,
from the below spreadsheet, how will the formula in B9 be represented in Excel using relative
addressing?
A) B4-B5*A9
B) C5-C6*A10
C) B4-B5*A10
D) B5-B6*A10
Answer: A
Diff: 2
Blooms: Apply
LO1: Copy formulas from one cell to another or to a range of cells.
5) If a dollar sign is used after the column in B5 (B$5), how will the formula at B8 be
represented in C9 using absolute addressing?
A) C3-B$5*C9
B) C5-C$6*B9
C) C5-C$6*C9
D) C5-C$5*B9
Answer: D
Diff: 2
Blooms: Apply

18 Chapter 1 Appendix A1 Basic Excel Skills Business Analytics, 3e
6) If a dollar sign is used before the column label B4 ($B4), how will the formula at B10 be
represented in C11 using absolute addressing?
A) $B5-C6*B11
B) $C5-C6*A10
C) $B4-C5*B11
D) $A5-C6*B11
Answer: A
Diff: 2
Blooms: Apply
7) If, in the spreadsheet, cells B9 and B10 were empty, which of the following formulas should
be entered in B8 so that the formula can be dragged to B9 and B10 to obtain their correct values?
A) B4-B5*A8
B) B4-B5*$A8
C) $B4-B5*$A8
D) $B$4-$B$5*$A8
Answer: D
Diff: 2
Blooms: Apply
8) Using a $ sign before a column label .

A) keeps the reference to both the row and column fixed
B) keeps the reference to the row fixed, but allows the column reference to change
C) keeps the reference to column fixed, but allows the row reference to change
D) allows both the row and column references to change
Answer: C
Diff: 1
Blooms: Remember

9) To copy a formula from a single cell or range of cells down a column or across a row, first
, click and hold the mouse on the small square in the lower right-hand corner of the
cell, and drag the formula to the "target" cells which you wish to copy.
A) press Ctrl-C
B) select the cell or range
C) press Ctrl-Enter
D) select the whole spreadsheet
Answer: B
Diff: 1
Blooms: Remember
10) Trace the process of copying and pasting a cell, which has a formula in it, such that the
formula is not retained in the pasted cell.
A) Home - Paste - Paste Special - Paste Values
B) Home - Paste - Paste Special - Paste Validation
C) Home - Paste - Paste Special - Paste Formats
D) Home - Paste - Paste Special - Paste Formulas
Answer: A
Diff: 1
Blooms: Remember
Topic: Miscellaneous Excel Functions and Tools

Use the data given below to answer the following question(s).
Below is a spreadsheet of purchase orders for a computer hardware retailer.
A B C D E F G H
Purchase
1 Orders
2
Item Item Cost per A/P Terms Order Order
3 Supplier Description Cost Quantity Order (Months) No. Size
Rex Graphics
4 Technologies Card $ 89 35 $3115 20 AL123 Large
Rex
5 Technologies Monitor $150 15 $2250 25 AL234 Small
Rex
6 Technologies Keyboard $ 15 40 $600 15 AL345 Large
Rex
7 Technologies Speakers $ 15 20 $300 25 AL456 Small
Max's
8 Wavetech HD Cables $5 10 $50 25 KO876 Small
Max's
9 Wavetech Processor $278 27 $6950 30 KO765 Large
Max's
10 Wavetech Hard disk $120 18 $2160 20 KO654 Small
11
12
11) To find the total order cost, what Excel formula should be used in A12?
A) =COUNT(C4:C10)
B) =COUNT(C4:C7)
C) =MAX(C4:C10)
D) =SUM(E4:E10)
Answer: D
Diff: 2
Blooms: Apply
Topic: Excel Functions
LO1: Use basic and advanced Excel functions.
12) For which of the following columns can the COUNT function be performed?
A) column G
B) column E
C) column B
D) column A

Answer: B
Diff: 2
Blooms: Apply
13) To find the average of the total cost of orders from Rex Technologies, what Excel formula
should be used in A12?
A) =AVERAGE(C4:C10)
B) =AVERAGE(C4:C7)
C) =AVERAGE(E4:E7)
D) =AVERAGE(E4:E10)
Answer: C
Diff: 2
Blooms: Apply
14) The easiest way to locate a particular function is to select a cell and click on the Insert
function button represented by on the Excel ribbon.
A) fx
B) Σ
C) $
D) %
Answer: A
Diff: 1
Blooms: Remember
LO1: Find buttons and menus in the Excel 2010 ribbon.
15) What is the Insert function in Excel?

Answer: The easiest way to locate a particular function is to select a cell and click on the Insert
function button fx, which can be found under the ribbon next to the formula bar and also in the
Function Library group in the Formulas tab. You may either type in a description in the search field,
such as "net present value," or select a category, such as "Financial," from the drop-down box. This
feature is particularly useful if you know what function to use but are not sure of what arguments to
enter because it will guide you in entering the appropriate data for the function arguments.
Diff: 1
Blooms: Remember

16) The Excel function of is used to find the largest value in a range of cells.
A) SUM(range)
B) COUNT(range)
C) MAX(range)
D) COUNTIF(range, criteria)
Answer: C
Diff: 1
Blooms: Remember
LO1: Apply logical functions in Excel formulas.
17) measures the worth of a stream of cash flows, taking into account the time value
of money.
A) Accounting rate of return
B) Net present value
C) Internal rate of return
D) Adjusted present value
Answer: B
Diff: 1
Blooms: Remember
LO1: Design simple Excel templates for descriptive analytics.
18) The reflects the opportunity costs of spending funds now versus achieving a return
through another investment, as well as the risks associated with not receiving returns until a later
time.
A) modified internal rate of return
B) payback period
C) accounting rate of return
D) discount rate
Answer: D
Diff: 1
Blooms: Remember
19) Identify the equation for calculating the net present value for a stated period of time, where
Ft = cash flow in period t, and i is the discount rate.
n
Ft  i
 2
A) NPV = t 0
n

B) NPV =  Ft (1
t
t 0
Ft
C) NPV = 
n
t
t 0 (1 i)
D) NPVn =
Ft (1 i)
t 0
t
Answer: C
Diff: 1
Blooms: Remember
20) A positive NPV means that the investment will provide added value because the projected
return exceeds the .
A) modified internal rate of return
B) discount rate
C) accounting rate of return
D) adjusted present value
Answer: B
Diff: 1
Blooms: Remember
21) Describe the method of calculating the net present value (NPV) in Excel.
Answer: The Excel function NPV (rate, value1, value2,…) calculates the net present value of an
investment by using a discount rate and a series of future payments (negative values) and income
(positive values). Rate is the rate of discount over the length of one period (i), and value1,
value2,… are 1 to 29 arguments representing the payments and income. The values must be
equally spaced in time and are assumed to occur at the end of each period. The NPV investment
begins one period before the date of the value1 cash flow and ends with the last cash flow in the
list. The NPV calculation is based on future cash flows. If the first cash flow (such as an initial
investment or fixed cost) occurs at the beginning of the first period, then it must be added to the
NPV result and not included in the function arguments.
Diff: 1
Blooms: Remember
Topic: Excel Template Design

Chapter 2: Database Analytics
1) What is a database?
A) a structured collection of related files and data
B) simply a collection of data
C) a data file holding a single file
D) flat files used to store data
Answer: A
Diff: 1
Blooms: Remember
Topic: Data Sets and Databases
LO1: Explain the difference between a data set and a database and apply Excel range names in
data files.
2) In a database, information is stored and maintained in .

A) fields
B) measurements
C) entities
D) attributes
Answer: C
Diff: 1
Blooms: Remember
data files.
3) In a database file, which is organized in a two-dimensional table, the rows represent records of
related data elements.
Answer: TRUE
Diff: 1
Blooms: Remember
data files.
4) The sort buttons in Excel can be found under:

A) the Data tab in the Sort & Filter group.
B) the Home tab in the Styles group.
C) the Insert tab in the Sort group.
D) the Sort tab in the Filter group.
Answer: A
Diff: 1

24
Chapter 2: Database Analytics Business Analytics, 3e 25
Blooms: Remember
Topic: Data Queries: Tables, Sorting, and Filtering
LO1: Construct Excel tables and be able to sort and filter data.
Use the data given below to answer the following question.
Following is the purchase order database of 'The Chef Says So', a restaurant in New York, over
the last quarter (April-June).
Order
Item Region Supplier Unit Cost Units
Date
5/6/2012 Steel Fork Antasia Peter 5.44 98
4/7/2012 Ceramic Plate Puitoria Kane 23.44 53
5/13/2012 Steel Fork Puitoria Jones 8.44 39
6/10/2012 Silver Spoon Puitoria Gerry 23.44 30
6/22/2012 Steel Fork Almeco Sarah 6.44 59
5/17/2012 Ceramic Plate Antasia Peter 8.44 63
4/25/2012 Steel Fork Puitoria Audrey 5.44 78
4/2/2012 Steel Fork Almeco Thomas 5.44 35
6/13/2012 Steel Fork Puitoria Mary 8.44 93
4/30/2012 Ceramic Plate Antasia Henry 5.44 32
5/11/2012 Ceramic Plate Antasia Philip 23.44 84
5/9/2012 Glass Bottle Puitoria Simson 128.45 5
5/30/2012 Ceramic Bowl Antasia Peter 19.44 19
6/6/2012 Ceramic Plate Puitoria Mary 12.44 31
4/3/2012 Silver Spoon Antasia Peter 12.44 67
6/26/2012 Silver Spoon Antasia Philip 23.44 18
4/23/2012 Ceramic Bowl Puitoria Kane 8.44 99
4/29/2012 Steel Fork Puitoria Simson 4.74 70
4/4/2012 Ceramic Bowl Antasia Philip 19.44 77
6/15/2012 Ceramic Plate Puitoria Gerry 12.44 49
6/25/2012 Ceramic Plate Puitoria Simson 18.45 90
6/28/2012 Ceramic Plate Almeco Sarah 23.44 10
5/25/2012 Ceramic Bowl Puitoria Jones 8.44 53

26 Chapter 2: Database Analytics Business Analytics, 3e
Order
Item Region Supplier Unit Cost Units
Date
4/12/2012 Silver Spoon Antasia Henry 8.44 99
4/18/2012 Steel Fork Puitoria Gerry 4.74 56
5/19/2012 Glass Bottle Puitoria Kane 128.45 8
6/4/2012 Ceramic Bowl Puitoria Mary 15.94 58
4/19/2012 Glass Bottle Almeco Sarah 278.45 6
5/31/2012 Silver Spoon Almeco Sarah 5.44 79
6/2/2012 Ceramic Plate Almeco Thomas 23.44 60
5/3/2012 Ceramic Plate Puitoria Jones 8.44 14
4/17/2012 Ceramic Plate Puitoria Audrey 8.44 31
5) Describe how to sort the data by inventory value to compute cumulative percentage of total
inventory value to help the restaurateur conduct a Pareto analysis. (Assume that no damages
were caused to the inventory purchased over the three months)
Answer:
In order to calculate inventory value of items, only Item, Unit Cost, and Units have to be retained
in the table. Inventory value can be calculated by multiplying the unit cost by the number of
units. Percentage and the cumulative percentage may be calculated based on the inventory
values. Then, sort by Item, calculate subtotals for each Item, calculate percentages, sort the
percentage in descending order and then calculate the cumulative percentages.
Unit Inventory Cumulative

Item Units Percentage
Cost Value Percentage
Steel Fork 5.44 98 533.12 1.77646 1.77646
Ceramic Plate 23.44 53 1242.32 4.13966 5.91612
Steel Fork 8.44 39 329.16 1.09683 7.01295
Silver Spoon 23.44 30 703.2 2.3432 9.35616
Steel Fork 6.44 59 379.96 1.2661 10.6223
Ceramic Plate 8.44 63 531.72 1.7718 12.3941
Steel Fork 5.44 78 424.32 1.41392 13.808
Steel Fork 8.44 93 784.92 2.61551 16.4235
Steel Fork 5.44 35 190.4 0.63445 17.0579

Unit Inventory Cumulative

Item Units Percentage
Cost Value Percentage
Ceramic Plate 12.44 63 783.72 2.61151 19.6695
Steel Fork 8.44 93 784.92 2.61551 22.285
Ceramic Plate 5.44 32 174.08 0.58007 22.865
Ceramic Plate 23.44 84 1968.96 6.56097 29.426
Steel Fork 8.44 38 320.72 1.0687 30.4947
Glass Bottle 128.45 5 642.25 2.14011 32.6348
Ceramic Bowl 19.44 19 369.36 1.23078 33.8656
Ceramic Plate 12.44 31 385.64 1.28503 35.1506
Silver Spoon 12.44 67 833.48 2.77732 37.928
Silver Spoon 23.44 18 421.92 1.40592 39.3339
Ceramic Bowl 8.44 99 835.56 2.78425 42.1181
Steel Fork 4.74 70 331.8 1.10562 43.2238
Ceramic Bowl 19.44 77 1496.88 4.98791 48.2117
Ceramic Plate 12.44 49 609.56 2.03118 50.2428
Ceramic Plate 18.45 90 1660.5 5.53312 55.776
Ceramic Plate 8.44 7 59.08 0.19687 55.9728
Ceramic Plate 23.44 10 234.4 0.78107 56.7539
Ceramic Bowl 8.44 53 447.32 1.49056 58.2444
Steel Fork 5.44 69 375.36 1.25078 59.4952
Silver Spoon 8.44 99 835.56 2.78425 62.2795
Steel Fork 4.74 56 265.44 0.8845 63.164
Ceramic Plate 12.44 83 1032.52 3.44057 66.6045
Glass Bottle 128.45 8 1027.6 3.42417 70.0287
Ceramic Bowl 8.44 65 548.6 1.82805 71.8568
Ceramic Bowl 15.94 58 924.52 3.08069 74.9374
Ceramic Bowl 27.4 45 1233 4.1086 79.0461
Glass Bottle 278.45 6 1670.7 5.56711 84.6132
Steel Fork 4.74 10 47.4 0.15795 84.7711
Silver Spoon 5.44 79 429.76 1.43205 86.2032
Ceramic Plate 23.44 60 1406.4 4.68641 90.8896
Steel Fork 4.74 17 80.58 0.26851 91.1581
Ceramic Plate 8.44 14 118.16 0.39373 91.5518
Ceramic Plate 23.44 97 2273.68 7.57636 99.1282
Ceramic Plate 8.44 31 261.64 0.87184 100
Total 30010.2

Diff: 3
Blooms: Apply
LO1: Construct Excel tables and be able to sort and filter data.
6) Which of the following relies on sorting data and calculating the cumulative percentage of the
characteristic of interest?
A) Randolph diagram
B) Anscombe's quartet
C) Bland-Altman plot
D) Pareto analysis
Answer: D
Diff: 1
Blooms: Remember
LO1: Apply the Pareto Principle to analyze data.
Below is a spreadsheet of purchase orders for a computer hardware retailer.
A B C D E F G H
1 Purchase Orders
2
Item Item Cost per A/P Terms Order Order
3 Supplier Description Cost Quantity Order (Months) No. Size
Graphics
4 Rex Technologies Card $ 89 35 $3115 20 AL123 Large
5 Rex Technologies Monitor $150 15 $2250 25 AL234 Small
6 Rex Technologies Keyboard $ 15 40 $600 15 AL345 Large
7 Rex Technologies Speakers $ 15 20 $300 25 AL456 Small
8 Max's Wavetech HD Cables $5 10 $50 25 KO876 Small
9 Max's Wavetech Processor $278 27 $6950 30 KO765 Large
10 Max's Wavetech Hard disk $120 18 $2160 20 KO654 Small
11
Item
12 Supplier Order Size Cost
13 Rex Technologies Large >15
14 Max's Wavetech

7) To find the largest quantity of items ordered from Rex Technologies, what Excel formula
should be used in A12?
A) =COUNTIF(D4:D10)
B) =SUM(D4:D7)
C) =MAX(D4:D7)
D) =COUNT(D4:D7)
Answer: C
Diff: 2
Blooms: Apply
Topic: Logical Functions
8) To find the number of orders with A/P terms less than 25 months, what Excel formula should
be used in A12?
A) =COUNTIF(F4:F10,"<25")
B) =COUNT(F4:F10,25)
C) =AVERAGE(F4:F10,"<25")
D) =COUNTIF(F4:F10,F5)
Answer: A
Diff: 2
Blooms: Apply
9) If purchase quantities of 25 units or higher are found to be large orders, and orders less than
25 are considered to be small, what IF function should be entered in H4 to be copied to H5:H10
to calculate each order's size?
A) =IF(D4=AND=OR=25,"Large","Small")
B) =IF(D4<>25,"Small")=AND(D4=25,"Large")
C) =IF(D4=25,"Large")=OR("Small")
D) =IF(D4>=25,"Large","Small")
Answer: D
Diff: 2
Blooms: Apply
10) Which of the following Database functions calculates the count of purchase orders made by
Rex Technologies?
A) =DCOUNT(A3:H10,C3,A12:A13)

B) =DCOUNT(A4:H10,C3,A12:A13)
C) =DCOUNT(A3:H10,C3,A13)
D) =DCOUNT(A3:H10,A3,A12:A13)
Answer: A
Diff: 3
Blooms: Apply
Topic: Lookup Functions for Database Queries
LO1: Use database functions to extract records.
11) Which of the following Database functions calculates the count of purchase orders made by
Rex Technologies for large size orders?
A) =DCOUNT(A3:H10,C3,A12:B13)
B) =DCOUNT(A3:H10,”Rex Technologies”,B12:B13)
C) =DCOUNT(A3:H10,C3,B12:B13)
D) =DCOUNT(A4:H10,D3,A12:B13)
Answer: A
Diff: 3
Blooms: Apply
12) Which of the following Database functions calculates the total quantity ordered in large size?
A) =DSUM(A3:H10,”Quantity”,B12:B13)
B) =DSUM(A3:H10,D3,B12:B13)
C) =DSUM(A3:H10,D3,A12:B13)
D) =DSUM(A4:H10,D3,B12:B13)
Answer: B
Diff: 3
Blooms: Apply
13) Which of the following Database functions calculates the total cost charged to Rex
Technologies for large size orders?
A) =DSUM(A3:H10,C3,A12:B14)
B) =DSUM(A4:H10,”Cost per Order”,A12:B13)
C) =DSUM(A3:H10,C3,A12:B13)
D) =DSUM(A3:H10,E3,A12:B13)
Answer: D
Diff: 3
Blooms: Apply

14) Which of the following Database functions calculates the average item cost ordered by Rex
Technologies?
A) =DAVERAGE(A3:H10,C3,A12:A13)
B) =DAVERAGE(A3:H10,C3,A12:B13)
C) =DAVERAGE(A3:H10,”Item Cost”,A12:A14)
D) =DSUM(A3:H10,C3,A12:A13)/COUNTA(A4:A10)
Answer: A
Diff: 3
Blooms: Apply
15) Which of the following is a differentiation between calculating using the functions
COUNT and COUNTIF?
A) COUNT does not require a range of cells; COUNTIF requires a range of cells.
B) COUNT only requires a range of cell and can be obtained without special criteria,
COUNTIF requires range and special criteria to be calculated.
C) COUNT requires a range of cells; COUNTIF does not require a range of cells, only special
criteria.
D) COUNT calculates the sum of values for a range of cells; COUNTIF finds the largest value in
a range of cells.
Answer: B
Diff: 2
Blooms: Remember
16) is a logical function that returns one value if the condition is true and another if the
condition is false.
A) OR(condition 1, condition 2…)
B) AND(condition 1, condition 2…)
C) TO(value if true, value if false)
D) IF(condition, value if true, value if false)
Answer: D
Diff: 1
Blooms: Remember
17) Which of the following functions is a logical function that returns TRUE if any condition is
true and FALSE if not?
A) TO(value if true, value if false)
B) AND(condition 1, condition 2…)

C) OR(condition 1, condition 2…)

D) IF(condition, value if true, value if false)
Answer: C
Diff: 1
Blooms: Remember
18) Give the logical function for the following: If cell B7 equals 12, check contents of cell B10.
If cell B10 is 10, then the value of the function in the string is YES; if not, it is a blank space. If
cell B7 does not equal 12, then the value of the function is 7.
A) =IF(B7=12,(AND(B10=10, "")(YES)),7)
B) =IF(B10=10,(OR(B7=12,"")"YES")7)
C) =IF(B7=12,(IF(B10=10,"YES", "")),7)
D) =IF(B7=12,(AND(B10=10,"YES","")(B10="NO"),7)
Answer: C
Diff: 3
Blooms: Understand
19) If cell G7 contains the function , it states that if the value in cell C3 is 9, the
number 7 will be assigned to cell G7; if the value in cell C3 is not 9, the number 4 will be
assigned to cell G7.
A) =IF(G7=9)(G7=7)=OR(G7=4)
B) =IF(G7=7)=THEN(C3=9)=OR(C3=4)
C) =IF(C3=9)(C3=7)=OR(C3=4)
D) =IF(C3=9,7,4)
Answer: D
Diff: 2
Blooms: Understand
20) The function returns a value or reference of the cell at the intersection of a
particular row and column in a given range.
A) VLOOKUP(lookup_value, table_array, col_index_num)
B) INDEX(array, row_num, col_num)
C) MATCH(lookup_value, lookup_array, match_type)
D) HLOOKUP(lookup_value, table_array,
row_index_num) Answer: B

Diff: 1
Blooms: Remember
LO1: Use Excel lookup functions to make database queries.
21) Which of the following Lookup functions returns the relative position of an item in an array
that equals a specified value in a specified order?
A) HLOOKUP(lookup_value, table_array, row_index_num)
B) MATCH(lookup_value, lookup_array, match_type)
C) INDEX(array, row_num, col_num)
D) VLOOKUP(lookup_value, table_array, col_index_num)
Answer: B
Diff: 1
Blooms: Remember
22) In a MATCH function, if the match_type = 0, then .

A) the function finds the largest value that is less than or equal to lookup_value
B) the function finds the smallest value that is greater than or equal to lookup_value
C) MATCH finds the first value that is exactly equal to lookup_value
D) the values in the lookup_array must be in a particular order
Answer: C
Diff: 1
Blooms: Remember
23) For which of the following MATCH functions must the values in the lookup_array be
ordered in a descending order?
A) When match_type = -1
B) When match_type >1
C) When match_type = 0
D) When match_type = 1
Answer: A
Diff: 1
Blooms: Remember

24) Using the spreadsheet below, provide the steps in using Excel formulas in finding the cost of
the first order for Item number 1345, and the total cost of all Item numbers 1345, using the
Match and Index functions in Excel. Column B is sorted by item number in ascending order.
A B C D E
1 Purchase Orders
2
3 Supplier Item No. Item Cost Quantity Cost per Order
4 Rex Technologies 1123 $ 89 35 $3115
5 Rex Technologies 1234 $150 15 $2250
6 Rex Technologies 1345 $ 15 40 $ 600
8 Max's Wavetech 1345 $ 5 10 $ 50
9 Max's Wavetech 1765 $278 27 $6950
10 Max's Wavetech 1654 $120 18 $2160
15 Max's Wavetech 1683 $100 31 $3100
Answer: To find the order cost associated with the first order for 1345, which is in column E, we
have to first use the Match function, =MATCH(1345,$B$4:$B$15,0).
Accordingly, the result will be, =MATCH(1345,$B$4:$B$15,0) = 3.
In order to find the cost associated with this result, we add this function in an Index function.
Therefore, the formula for finding cost is,
=INDEX($A$4:$E$15,MATCH(1345,$B$4:$B$15,0),5). …. (1)
The result for this formula is,
=INDEX($A$4:$E$15,MATCH(1345,$B$4:$B$15,5) = $600.
To find the total cost associated with all items under Item number: 1345, we find the last cost
associated with 1345 in column E, which is given by the formula
=INDEX($A$4:$E$15,MATCH(1345,$B$4:$B$15,1),5). …. (2)
The result for this formula is,
=INDEX($A$4:$E$15,MATCH(1345,$B$4:$B$15,1),5) = $50.
We then substitute both (1) and (2) into Excel's SUM function.
Therefore we get,
=SUM(INDEX($A$4:$E$15,MATCH(1345,$B$4:$B$15,0),5):INDEX($A$4:$E$15,MATCH(1
345,$B$4:$B$15,1),5))
Therefore the total cost for all items under 1345,
=SUM(INDEX($A$4:$E$15,MATCH(1345,$B$4:$B$15,0),5):INDEX($A$4:$E$15,MATCH(1
345,$B$4:$B$15,1),5)) = $950.
Diff: 3
Blooms: Apply


25) AND(condition 1, condition 2…) is a logical function that returns TRUE if all conditions are
true and FALSE if not.
Answer: TRUE
Diff: 1
Blooms: Remember
26) To use the VLOOKUP(lookup_value, table_array, col_index_num), the table must be sorted
in descending order.
Answer: FALSE
Diff: 1
Blooms: Remember
27) In a MATCH function, the default value for match_type = 0.

Answer: FALSE
Diff: 1
Blooms: Remember
28) In a MATCH function, if match_type = 1, then the function finds the smallest value that is
greater than or equal to lookup_value.
Answer: FALSE
Diff: 1
Blooms: Remember
29) Explain the different Lookup functions in Excel.

Answer: Excel provides some useful functions for finding specific data in a spreadsheet. These
functions are useful in many applications:

VLOOKUP(lookup_value, table_array, col_index_num) looks up a value in the leftmost

column of a table and returns a value in the same row from a column you specify. The table must
be sorted in an ascending order.
HLOOKUP(lookup_value, table_array, row_index_num) looks up a value in the top row of a
table and returns a value in the same column from a row you specify. The table must be sorted in
an ascending order from left to right.
INDEX(array, row_num, col_num) Returns a value or reference of the cell at the intersection of
a particular row and column in a given range.
MATCH(lookup_value, lookup_array, match_type) Returns the relative position of
an item in an array that matches a specified value in a specified order.
Diff: 1
Blooms: Remember
30) Which of the following is true about constructing PivotTables?

A) It is not possible to construct the PivotTable in the same worksheet.
B) Dragging a field into the Report Filter area allows addition of a third dimension to the
analysis.
C) Placing a field each in the row and column labels will automatically sum the variable values
in the table.
D) PivotTables cannot be duplicated by copying and pasting an existing table.
Answer: B
Diff: 2
Blooms: Remember
Topic: PivotTables
LO1: Use PivotTables to analyze and gain insight from data.

Chapter 3: Data Visualization
1) To select a chart type in Excel from the Charts group, which tab has to be accessed?
A) Design tab
B) Layout tab
C) Insert tab
D) Format tab
Answer: C
Diff: 1
Blooms: Remember
Topic: Creating Charts in Microsoft Excel
LO1: Create Microsoft Excel charts.
A B C D E F
1 Order Date Item Region Supplier Unit Cost Units
2 5/6/2012 Steel Fork Antasia Peter 5.44 98
3 4/7/2012 Ceramic Plate Puitoria Kane 23.44 53
4 5/13/2012 Steel Fork Puitoria Jones 8.44 39
5 6/10/2012 Silver Spoon Puitoria Gerry 23.44 30
6 6/22/2012 Steel Fork Almeco Sarah 6.44 59
7 5/17/2012 Ceramic Plate Antasia Peter 8.44 63
8 4/25/2012 Steel Fork Puitoria Audrey 5.44 78
9 6/1/2012 Steel Fork Puitoria Jones 8.44 93
10 4/2/2012 Steel Fork Almeco Thomas 5.44 35
12 6/13/2012 Steel Fork Puitoria Mary 8.44 93
13 4/30/2012 Ceramic Plate Antasia Henry 5.44 32
14 5/11/2012 Ceramic Plate Antasia Philip 23.44 84
15 6/18/2012 Steel Fork Antasia Peter 8.44 38
16 5/9/2012 Glass Bottle Puitoria Simson 128.45 5
17 5/30/2012 Ceramic Bowl Antasia Peter 19.44 19
18 6/6/2012 Ceramic Plate Puitoria Mary 12.44 31
19 4/3/2012 Silver Spoon Antasia Peter 12.44 67
20 6/26/2012 Silver Spoon Antasia Philip 23.44 18
21 4/23/2012 Ceramic Bowl Puitoria Kane 8.44 99
22 4/29/2012 Steel Fork Puitoria Simson 4.74 70
23 4/4/2012 Ceramic Bowl Antasia Philip 19.44 77
24 6/15/2012 Ceramic Plate Puitoria Gerry 12.44 49

37
38 Chapter 3: Data Visualization Business Analytics, 3e
A B C D E F
25 6/25/2012 Ceramic Plate Puitoria Simson 18.45 90
27 6/28/2012 Ceramic Plate Almeco Sarah 23.44 10
28 5/25/2012 Ceramic Bowl Puitoria Jones 8.44 53
30 4/12/2012 Silver Spoon Antasia Henry 8.44 99
31 4/18/2012 Steel Fork Puitoria Gerry 4.74 56
32 6/30/2012 Ceramic Plate Puitoria Gerry 12.44 83
33 5/19/2012 Glass Bottle Puitoria Kane 128.45 8
34 4/16/2012 Ceramic Bowl Antasia Peter 8.44 65
35 6/4/2012 Ceramic Bowl Puitoria Mary 15.94 58
36 5/2/2012 Ceramic Bowl Puitoria Kane 27.4 45
37 4/19/2012 Glass Bottle Almeco Sarah 278.45 6
38 6/11/2012 Steel Fork Puitoria Gerry 4.74 10
39 5/31/2012 Silver Spoon Almeco Sarah 5.44 79
40 6/2/2012 Ceramic Plate Almeco Thomas 23.44 60
42 5/3/2012 Ceramic Plate Puitoria Jones 8.44 14
43 6/3/2012 Ceramic Plate Puitoria Jones 23.44 97
44 4/17/2012 Ceramic Plate Puitoria Audrey 8.44 31
2) Describe how to and construct a line chart exhibiting the purchase order of ceramic plates over
the three months.
Answer: Filter the data set by Item (Ceramic Plate). Sort the Order Date by Oldest to Newest.
Select columns A and F and choose the type of chart (Line Chart) from the Charts group under
the Insert tab. Change the title and make data and formatting changes where necessary.
Diff: 3

Chapter 3: Data Visualization Business Analytics, 3e 39
Blooms: Apply
3) Changes to the type of chart, data included in the chart, and chart layout and styles can be
made from the Layout tab.
Answer: FALSE
Diff: 1
Blooms: Remember
4) Describe how to and construct a pie chart exhibiting the count of purchase orders by item.
Answer: Identify all the outcomes for the variable Item. Create a frequency table of the counts
of purchase orders by each outcome of the variable Item using the Excel formula
COUNTIF($B$2:$B$44, criteria), where criteria represents each outcome of the variable Item.
Select the entire table and choose the type of chart (Pie Chart) from the Charts group under the
Insert tab. Change the title and make data and formatting changes where necessary.
Diff: 3
Blooms: Apply

5) Describe how to and construct a column chart exhibiting the total units purchased by region.
Answer: Identify all the outcomes for the variable Region. Create a frequency table of the sum
of units for each outcome of the variable Region using the Excel formula
SUMIF($C$2:$C$44,criteria,$F$2:$F$44), where criteria represents each outcome of the
variable Region. Select the entire table and choose the type of chart (Column Chart) from the
Charts group under the Insert tab. Change the title and make data and formatting changes where
necessary.
Diff: 3
Blooms: Apply

6) Describe how to and construct an area chart exhibiting the units ordered by the region of
Puitoria over the three months.
Answer: Filter the data set by Region (Puitoria). Sort the Order Date by Oldest to Newest. Select
the columns A and F of the data set and choose the type of chart (Area Chart) from the Charts
group under the Insert tab. Change the title and make data and formatting changes where
necessary.
Diff: 3
Blooms: Apply

7) Describe how to and construct a scatter chart exhibiting the relationship between the unit cost
and the number of units for the purchase of steel forks.
Answer: Filter the data set by Item (Steel Fork). Select the columns for Unit Cost and Units
(columns E and F), and choose the type of chart (Scatter Chart) from the Charts group under the
Insert tab. Change the title and make data and formatting changes where necessary.
Diff: 3
Blooms: Apply

8) Describe how to and construct a combination chart exhibiting the purchase order of ceramic
plates as a line, and the unit cost as columns on the secondary axis over the three months.
Answer: Filter the data set by Item (Ceramic Plate). Sort the Order Date by Oldest to Newest.
Select columns A, E and F and choose the type of chart (Line Chart) from the Charts group
under the Insert tab. Right click the unit cost line and select Change Series Chart Type. Change
the Unit Cost line to column, and check the Secondary Axis box. Change the title and make data
and formatting changes where necessary.
Diff: 3
Blooms: Apply
9) Elaborate on the use of geographic data mapping in business analytics.

Answer: Many applications of business analytics involve geographic data. For example,
problems such as finding the best location for production and distribution facilities, analyzing
regional sales performance, transporting raw materials and finished goods, and routing vehicles
such as delivery trucks involve geographic data. In such problems, data mapping can help in a
variety of ways. Visualizing geographic data can highlight key data relationships, identify trends,
and uncover business opportunities. In addition, it can often help to spot data errors and help end
users understand solutions, thus increasing the likelihood of acceptance of decision models.
MapPoint is a geographic data-mapping tool that allows you to visualize data imported from
Excel and other database sources and integrate them into other Microsoft Office applications.
Diff: 1
Blooms: Remember

10) Roger wants to compare values across categories using vertical rectangles. Which of the
following charts must Roger use?
A) Line chart
B) Clustered column chart
C) Pie chart
D) Stacked column chart
Answer: B
Diff: 2
Blooms: Apply
LO1: Determine the appropriate chart to visualize different types of data.
11) Which of the following charts provides a useful means for displaying data over time?
A) Scatter chart
B) A doughnut chart
C) Pie chart
D) Line chart
Answer: D
Diff: 1
Blooms: Remember
12) Philip wishes to understand the relative proportion of each data source to the total. Which of
the following charts must Philip use?
A) Pie chart
B) Bar chart
C) Scatter chart
D) Column chart
Answer: A
Diff: 1
Blooms: Remember
13) Observations consisting of pairs of variable data are required to construct a chart.
A) doughnut
B) scatter
C) radar
D) line
Answer: B
Diff: 1

Blooms: Remember
14) Which of the following charts shows three-dimensional data?

A) Surface chart
B) Column chart
C) Stock chart
D) Doughnut chart
Answer: A
Diff: 1
Blooms: Remember
15) Peige, a stock broker, has data consisting of price, price/earnings ratio, and market
capitalization for seven different stocks on one particular day. She wishes to plot these three
variables in two dimensions. Which of the following charts must Peige use?
A) Stock chart
B) Surface chart
C) Bubble chart
D) Line chart
Answer: C
Diff: 2
Blooms: Apply
16) Which of the following charts allows plotting of multiple dimensions of several data series?
A) Doughnut chart
B) Bubble chart
C) Radar chart
D) Area chart
Answer: C
Diff: 1
Blooms: Remember

17) How does Excel distinguish between vertical and horizontal bar charts?
Answer: Excel distinguishes between vertical and horizontal bar charts, calling the former
column charts and the latter bar charts. A clustered column chart compares values across
categories using vertical rectangles; a stacked column chart displays the contribution of each
value to the total by stacking the rectangles; and a 100% stacked column chart compares the
percentage that each value contributes to a total.
Diff: 1
Blooms: Remember
18) After choosing the PivotTable, the PivotChart can be found on the tab.
A) Design
B) View
C) Analyze
D) Layout
Answer: C
Diff: 1
Blooms: Remember
Topic: PivotTables
LO1: Display the results of PivotTables using PivotCharts.
19) Construct a PivotChart to visualize the purchase order total units for steel forks and ceramic
bowls within each region.
Answer: Choose the whole range of data set and opt for PivotChart in the Insert Tab. Set the
regions as row labels and the items as column labels after filtering to include only ceramic bowl
and steel fork.
Diff: 3

Blooms: Apply
Topic: PivotTables
LO1: Display the results of PivotTables using PivotCharts.
20) To select data bars in Excel from the Home tab, which command would have to be accessed?
A) Find & Select under Editing group
B) Conditional Formatting under Styles group
C) Format under Cell group
D) None of the above
Answer: B
Diff: 1
Blooms: Remember
Topic: Other Excel Data Visualization Tools
LO1: Apply data bars, color scales, icon sets, and sparklines to create other types of
visualizations.
21) You may not display data bars without the data in the cells.
Answer: FALSE
Diff: 1
Blooms: Remember
visualizations.
22) Color Scales are one of the options under Conditional Formatting.
Answer: TRUE
Diff: 1
Blooms: Remember
visualizations.
23) How is the color-coding of quantitative data commonly called?

A) Heatmap
B) Rainbow
C) Scaling
D) Hot & Cold
Answer: A
Diff: 1
Blooms: Remember

visualizations.
24) Icon Sets can provide more information than Color Scales because they allow you to
combine shapes and arrows.
Answer: FALSE
Diff: 1
Blooms: Remember
visualizations.
25) How many types of Sparklines are available?

A) 2
B) 3
C) 4
D) 5
Answer: B
Diff: 1
Blooms: Remember
visualizations.
26) Let’s suppose you have a data set reporting the sales of five different product categories
across the columns, and for each of the past four quarters, listed across the rows. Which of the
following use of Sparklines would be the most appropriate?
A) Column Sparklines to compare quarterly sales across product categories and time series for
each product category.
B) Line Sparklines to visualize quarterly sales across product categories, and Column Sparklines
to compare time series for each product category.
C) Column Sparklines to compare quarterly sales across product categories, and Line Sparklines
to visualize time series for each product category.
A) Line Sparklines to visualize quarterly sales across product categories and time series for each
product category.
Answer: C
Diff: 2
Blooms: Understand
visualizations.

27) Win/Loss Sparklines can only be used on quantitative data.

Answer: TRUE
Diff: 1
Blooms: Remember
visualizations.
28) Complete the following sentence: a Dashboard…

A) is a visual representation of a set of key business measures.
B) is derived from the analogy of an automobile’s control panel.
C) provides important summaries of key business information.
D) is all of the above.
Answer: D
Diff: 1
Blooms: Remember
Topic: Dashboards
LO1: Develop useful dashboards for communicating data and information.
29) Dashboards may include tabular as well as visual data to help a manager to quickly locate
key information.
Answer: TRUE
Diff: 1
Blooms: Remember
Topic: Dashboards
30) What is a Key Performance Indicator?

A) A chart located in the bottom right of a dashboard.
B) An unnecessarily cluttered chart or table.
C) An important business metric.
D) None of the above.
Answer: C
Diff: 1
Blooms: Remember
Topic: Dashboards

Chapter 4: Descriptive Statistics
1) Measure is the act of obtaining data associated with a metric. Measurements are the numerical
values associated with a metric.
Answer: FALSE
Diff: 1
Blooms: Remember
Topic: Metrics and Data Classification
LO1: Define a metric and explain the concepts of measurement and measures.
2) Which of the following is an example of a measure of continuous metrics?

A) four errors revealed in an invoice
B) a delivery delayed by seven days
C) weight and volume of a sheet of steel
D) three incomplete orders on a day
Answer: C
Diff: 2
Blooms: Understand
LO1: Explain the difference between a discrete metric and continuous metric, and provide
examples of each.
3) Nominal data:
A) are ranked according to some relationship to one another.
B) have constant differences between observations.
C) are continuous and have a natural zero.
D) are sorted into categories according to specified characteristics.
Answer: D
Diff: 1
Blooms: Remember
LO1: Describe the four groups of data classification, categorical, ordinal, interval, and ratio, and
provide examples of each.
4) Which of the following is a disadvantage of ordinal data?

A) They bear no relationship to one another.
B) They have no fixed units of measurement.
C) They have no natural zero.
D) They are not comparable with each other.
Answer: B
Diff: 2
Blooms: Understand

50
Chapter 4: Descriptive Statistics Business Analytics, 3e 51

5) Which of the following allow meaningful comparison of ranges, averages and other statistics?
A) interval data
B) categorical data
C) ratio data
D) ordinal data
Answer: A
Diff: 1
Blooms: Remember
6) Following are the components of a data set containing purchase details of a shoe
manufacturing company. Identify the ratio data.
A) Item Number
B) Rank of suppliers
C) Item cost
D) Arrival Date
Answer: C
Diff: 2
Blooms: Apply
7) When data are classified by the type of measurement scale, which is the strongest form of
measurement?
A) nominal
B) interval
C) ordinal
D) ratio
Answer: D
Diff: 1
Blooms: Remember

52 Chapter 4: Descriptive Statistics Business Analytics, 3e
8) Explain statistics as defined by David Hand. What are the two ways in which Microsoft Excel
supports statistical analysis?
Answer: Statistics, as defined by David Hand, is both the science of uncertainty and the
technology of extracting information from data. Statistics involves collecting, organizing,
analyzing, interpreting, and presenting data. A statistic is a summary measure of data. Microsoft
Excel supports statistical analysis in two ways:
• with statistical functions that are entered in worksheet cells directly, or embedded in formulas
• with the Excel Analysis Toolpak add-in to perform more complex statistical computations.
Diff: 1
Blooms: Remember
LO1: Explain the science of statistics and define the term statistic.
9) To construct a frequency distribution for categorical data, the

A) observations that appear in each category must be summed up.
B) number of observations that appear in each category must be counted.
C) observations in each category must be multiplied by observations in the corresponding
category.
D) number of observations in each category must be divided by the total number of observations
in all categories.
Answer: B
Diff: 2
Blooms: Remember
Topic: Frequency Distributions and Histograms
LO1: Construct a frequency distribution for categorical, numerical, and grouped data.
10) When constructing frequency distributions for numerical data, SUMIF is used to count the
frequencies of each discrete value.
Answer: FALSE
Diff: 1
Blooms: Remember
11) How is a frequency distribution calculated for categorical and numerical data?
Answer: A frequency distribution is a table that shows the number of observations in each of
several non-overlapping groups. Categorical variables naturally define the groups in a frequency
distribution. The frequencies may be expressed as a fraction, or proportion, of the total; these are
called relative frequencies. A relative frequency distribution is a tabular summary of the relative
frequencies of all categories. For numerical data that consist of a small number of discrete
values, frequency distributions may be constructed in a similar way as done for categorical data;
COUNTIF is used to count the frequencies of each value. A graphical depiction of frequency
distributions for numerical data in the form of a column chart is called a histogram.

Diff: 2
Blooms: Remember
12) If a data set has 'c' number of observations, the relative frequency of category 'l' is computed
as .
A) (frequency of category 'l') / 'c'
B) 'c' × (number of observations in category 'l')
C) (sum of all observations in category 'l') / 'c'
D) sum of ('c' + each observation in category 'l')
Answer: A
Diff: 1
Blooms: Remember
LO1: Construct a relative frequency distribution and histogram.
Following is an extract from the Employee Payroll Database of HFR Informatics Inc.
Employee Ethnic Group Gender Rank / Grade Pay Scale

Maria Asian American Female 3 A
Peter White American Male 2 B
George Hispanic American Male 1 C
Smith Black American Female 1 D
Johnson Alaska Native Male 2 E
Thompson Asian American Male 2 B
Martinez Alaska Native Male 3 A
Lewis White American Female 2 B
Lee Black American Male 2 A
Taylor Asian American Female 1 B
Carter Asian American Male 2 C
Edwards Hispanic American Male 2 E
Bailey White American Male 2 B
Cooper White American Male 2 A
Bill Alaska Native Male 3 E
Cox Asian American Male 1 A
Perry Hispanic American Female 2 C
Flores Alaska Native Female 2 B
Woods White American Male 3 E
Cole Asian American Female 1 A

13) What is the relative frequency of Grade 3 employees?

A) 4
B) 0.55
C) 0.20
D) 5
Answer: C
Diff: 3
Blooms: Apply
14) What is the relative frequency of Female employees?

A) 0.65
B) 0.75
C) 0.25
D) 0.35
Answer: D
Diff: 3
Blooms: Apply
15) A graphical depiction of a frequency distribution for numerical data in the form of a column
chart is called a .
A) cartogram
B) correlogram
C) histogram
D) dendogram
Answer: C
Diff: 1
Blooms: Remember
16) While constructing a histogram, how is group width calculated?

A) number of groups × (lower limit of the last group + upper limit of the first group)
B) (upper limit of the last group - lower limit of the first group) / number of groups
C) (upper limit of the first group + number of groups) × lower limit of the last group + number of
groups)
D) (lower limit of the first group - number of groups) × upper limit of the last group
Answer: B

Diff: 1
Blooms: Remember
Use the data given below to answer the following question.
Order Date Item Region Supplier Unit Cost Units

4/7/2012 Ceramic Plate Puitoria Kane 23.44 53
6/10/2012 Silver Spoon Puitoria Gerry 23.44 30
6/22/2012 Steel Fork Almeco Sarah 6.44 59
4/2/2012 Steel Fork Almeco Thomas 5.44 35
6/13/2012 Steel Fork Puitoria Mary 8.44 93
4/30/2012 Ceramic Plate Antasia Henry 5.44 32
5/11/2012 Ceramic Plate Antasia Philip 23.44 84
5/9/2012 Glass Bottle Puitoria Simson 128.45 5
6/6/2012 Ceramic Plate Puitoria Mary 12.44 31
4/3/2012 Silver Spoon Antasia Peter 12.44 67
6/26/2012 Silver Spoon Antasia Philip 23.44 18
4/29/2012 Steel Fork Puitoria Simson 4.74 70
4/4/2012 Ceramic Bowl Antasia Philip 19.44 77
6/25/2012 Ceramic Plate Puitoria Simson 18.45 90
6/28/2012 Ceramic Plate Almeco Sarah 23.44 10
5/25/2012 Ceramic Bowl Puitoria Jones 8.44 53

Order Date Item Region Supplier Unit Cost Units

4/12/2012 Silver Spoon Antasia Henry 8.44 99
5/19/2012 Glass Bottle Puitoria Kane 128.45 8
6/4/2012 Ceramic Bowl Puitoria Mary 15.94 58
4/19/2012 Glass Bottle Almeco Sarah 278.45 6
5/31/2012 Silver Spoon Almeco Sarah 5.44 79
6/2/2012 Ceramic Plate Almeco Thomas 23.44 60
4/17/2012 Ceramic Plate Puitoria Audrey 8.44 31
17) Construct a relative frequency distribution for items in the purchase order database and show
the proportions of the frequencies visually using a pie chart.
Answer: In a new table, list out the items and use the COUNTIF function to calculate the
frequencies. The relative frequency may be calculated as:
(frequency of an item) / total number of observations
Relative
Items Frequency
Frequency
Steel Fork 13 0.3
Ceramic Plate 15 0.35
Silver Spoon 5 0.12
Glass Bottle 3 0.07
Ceramic Bowl 7 0.16
Total 43 1
The pie chart can be constructed for the items with their corresponding relative frequencies.

Diff: 3
Blooms: Apply
18) Not specifying a Bin Range will not allow Excel to automatically determine bin values for
the frequency distribution and histogram.
Answer: FALSE
Diff: 1
Blooms: Remember
19) Fewer groups provide a "coarser" histogram.

Answer: TRUE
Diff: 2
Blooms: Remember
20) What is the cumulative relative frequency of employees on a 'A to D' pay scale?
A) 1.00
B) 0.80
C) 0.30
D) 0.60
Answer: B
Diff: 3

Blooms: Apply
LO1: Compute cumulative relative frequencies.
21) What is the cumulative relative frequency of Ranks 1 and 2?

A) 0.80
B) 0.15
C) 0.30
D) 0.25
Answer: A
Diff: 3
Blooms: Apply
22) Which of the following represents the proportion of the total number of observations that fall
at or below the upper limit of each group?
A) Percentile
B) Pareto chart
C) Frequency distribution
D) Cumulative relative frequency
Answer: D
Diff: 1
Blooms: Remember
23) The Excel 2010 function computes the kth percentile of data in the range specified
in the array field, where k is in the range 0 to 1, inclusive.
A) PERCENTILE.INC(array, k)
B) PERCENTILE(array + k)
C) PERCENTILE.IF(array, k)
D) PERCENTILE(SUM(array),
k) Answer: A
Diff: 1
Blooms: Remember
Topic: Percentiles and Quartiles
LO1: Find percentiles and quartiles for a data set.

Following is an extract from the Cost per Order Database of Grogtes LLC.
Cost per
Item Category Item ID Item Cost Units
Order
Nuts N101 $2.44 94 $229.36
Screws S101 $20.44 49 $1,001.56
Nuts N102 $5.44 35 $190.40
Screwdriver SD101 $20.44 26 $531.44
Nuts N102 $3.44 55 $189.20
Screws S102 $5.44 59 $320.96
Nuts N101 $2.44 74 $180.56
Nuts N102 $5.44 89 $484.16
Nuts N101 $2.44 31 $75.64
Screws S103 $9.44 59 $556.96
Nuts N102 $5.44 89 $484.16
Screws S101 $2.44 28 $68.32
Screws S101 $20.44 80 $1,635.20
Nuts N102 $5.44 34 $184.96
Nails NG101 $125.45 1 $125.45
Bolts B101 $16.44 15 $246.60
Screws S103 $9.44 27 $254.88
Screwdriver SD102 $9.44 63 $594.72
Screwdriver SD101 $20.44 14 $286.16
Bolts B102 $5.44 95 $516.80
Nuts N103 $1.74 66 $114.84
Bolts B101 $16.44 73 $1,200.12
Screws S103 $9.44 45 $424.80
Screws S104 $15.45 86 $1,328.70
Screws S102 $5.44 3 $16.32
Screws S101 $20.44 6 $122.64
Bolts B102 $5.44 49 $266.56
Nuts N101 $2.44 65 $158.60
Screwdriver SD103 $5.44 95 $516.80
Nuts N103 $1.74 52 $90.48
Screws S103 $9.44 79 $745.76
Nailgun pack NG101 $125.45 4 $501.80

Cost per
Item Category Item ID Item Cost Units
Order
Bolts B102 $5.44 61 $331.84
Bolts B103 $12.94 54 $698.76
Bolts B104 $24.40 41 $1,000.40
Nails NG102 $275.45 2 $550.90
Nuts N103 $1.74 6 $10.44
Screwdriver SD104 $2.44 75 $183.00
Screws S101 $20.44 56 $1,144.64
Nuts N103 $1.74 13 $22.62
Screws S102 $5.44 10 $54.40
Screws S101 $20.44 93 $1,900.92
Screws S102 $5.44 27 $146.88
24) Which of the following observations is closest to the 87th percentile of costs per order?
A) 75 SD104 screwdrivers for $183.00
B) 66 N103 nuts for $114.84
C) 73 B101 bolts for $1,200.12
D) 49 S101 screws for $1,001.56
Answer: D
Diff: 3
Blooms: Apply
25) Which of the following does the 38th percentile of the costs per order indicate?
A) 62% of the costs per order are more than or equal to $190.40.
B) 38% of the costs per order are less than or equal to $189.20.
C) 62% of the costs per order are less than or equal to $484.16.
D) 38% of the costs per order are more than or equal to $501.80.
Answer: B
Diff: 3
Blooms: Apply
26) Which of the following observations is closest to the third quartile?

A) 35 N102 nuts for $190.40
B) 59 S103 screws for $556.96
C) 13 N103 nuts for $22.62

D) 2 NG102 nailgun packs for $550.90

Answer: B
Diff: 3
Blooms: Apply
27) Which of the following does the second quartile of the costs per order indicate?
A) 2% of the costs per order are less than or equal to $114.84.
B) 20% of the costs per order are less than or equal to $1,200.12.
C) 5% of the costs per order are less than or equal to $229.36.
D) 50% of the costs per order are less than or equal to $286.16.
Answer: D
Diff: 3
Blooms: Apply
28) What is the rank of the 42nd percentile of the costs per order ?
A) 17
B) 13.35
C) 19
D) 33.75
Answer: C
Diff: 3
Blooms: Apply
29) Which of the following is true about quartiles?

A) The 25th percentile is called the fourth quartile.
B) One-fourth of the data fall below the fourth quartile.
C) Three-fourths of the data are below the third quartile.
D) The 50th quartile is the third percentile.
Answer: C
Diff: 2
Blooms: Remember

30) Which of the following will give the value for the third quartile?
A) PERCENTILE.INC(array, 0.75)
B) QUARTILE.INC(array, 0.75)
C) DECILE.INC(array, 0.30)
D) QUARTILE.INC(array, 0.25)
Answer: A
Diff: 2
Blooms: Remember
31) Which of the following is true about cross-tabulation?

A) All subcategories together must constitute the complete data set.
B) A cross-tabulation table is often called a latent class model.
C) Each observation can be classified into many subcategories.
D) The table displays the number of categorical variables between two observations.
Answer: A
Diff: 2
Blooms: Remember
Topic: Cross-Tabulations
LO1: Construct a cross-tabulation (contingency table).
32) The purpose of sampling is to .

A) enumerate all the values in the population
B) measure all items of interest for a particular interest or investigation
C) obtain sufficient information to draw a valid inference about a population
D) calculate all variables and observations within a population
Answer: C
Diff: 1
Blooms: Remember
Topic: Descriptive Statistical Measures
LO1: Explain the difference between a population and a sample.
33) In statistical notation, the elements of a data set are typically labeled as .
A) summation operators
B) letters in capitals
C) Greek letters
D) subscripted variables
Answer: D
Diff: 1
Blooms: Remember
LO1: Understand statistical notation.

34) According to statistical notations, what does Σ stand for?

A) to act as a summation operator
B) to represent sample statistics
C) to represent population measures
D) to represent the number of items in a population
Answer: A
Diff: 1
Blooms: Remember
LO1: Understand statistical notation.
35) Which of the following measures of location is calculated using the formula
, where n is the number of observations?
A) midrange
B) sample mean
C) mode
D) median
Answer: B
Diff: 1
Blooms: Remember
LO1: List different measures of location.
36) Which of the following is true from the equation:

= 0, where 𝑥̅ is the mean of the sample?
A) The sum of the deviations above the mean are the same as the sum of the deviations below
the mean
B) Half the data lie above the mean of the values
C) The specific set of values does not have any outliers affecting the mean
D) Half the data lie below the mean of the values
Answer: A
Diff: 2
Blooms: Remember
LO1: Compute the mean, median, mode, and midrange of a set of data.

Below is a table showing the costs per order of items bought by a computer hardware store.
Item Cost per

Supplier
Description Order
Aloham Technologies Monitors $250
Aloham Technologies Hard Disks $220
Aloham Technologies Power Supply $88
Aloham Technologies Graphics Card $300
Aloham Technologies Processor $325
Aloham Technologies Speakers $88
MindRoot Hardwares Flashdrive $9
MindRoot Hardwares Graphics Card $299
MindRoot Hardwares CD-ROM $88
Bluetooth
MindRoot Hardwares $80
Device
37) Calculate the mean cost per order.

A) $220.54
B) $174.70
C) $159
D) $88
Answer: B
Diff: 2
Blooms: Apply
38) Calculate the mode for the cost per order data.
A) $174.17
B) $325
C) $88
D) $206.5
Answer: C
Diff: 1
Blooms: Apply

39) Calculate the median for the cost per order data.
A) $325
B) $154
C) $174.17
D) $88
Answer: B
Diff: 1
Blooms: Apply
40) One of the measures of location is calculated as 88. Which of the following measures of
location corresponds to this value?
A) mean
B) mode
C) median
D) midrange
Answer: B
Diff: 1
Blooms: Apply
41) The measure of location that specifies the middle value when the data are arranged from least
to greatest is the .
A) outlier
B) mean
C) median
D) mode
Answer: C
Diff: 1
Blooms: Remember
42) Which of the following is true for a median?

A) A median is only meaningful for interval or ordinal data and not for ratio data.
B) Medians can be calculated no matter how the data is arranged.
C) Medians are affected by outliers.
D) For an even number of observations, the median is the mean of the two middle numbers.
Answer: D

Diff: 1
Blooms: Remember
43) Which of the following is a difference between a mean and a median?

A) A mean divides the data half above it and half below it; a median does not.
B) A median is not affected by outliers; a mean is affected by outliers.
C) A mean is an observation that occurs most frequently; a median is the average of all
observations.
D) A median is not meaningful for ratio data; a mean is meaningful to ratio data.
Answer: B
Diff: 1
Blooms: Remember
44) The is the observation that occurs most frequently.

A) mode
B) mean
C) outlier
D) median
Answer: A
Diff: 1
Blooms: Remember
45) Which of the following is true for a mode?

A) Modes are the mid values of data arranged from least to greatest.
B) Modes are affected by outliers.
C) Modes cannot be used in data having repetitious values.
D) The highest bar in a histogram is its mode.
Answer: D
Diff: 1
Blooms: Remember
46) The is the average of the greatest and least values in the data set.
A) mean
B) median

C) midrange
D) mode
Answer: C
Diff: 1
Blooms: Remember
47) Which of the following types of conditions is most likely to render a midrange value useless?
A) having repetitious values in the data set
B) having the data arranged from least to greatest in value
C) having a small sample size
D) having extreme values in a data
Answer: D
Diff: 1
Blooms: Remember
48) Which of the following is a similarity between a midrange and a mean?

A) Both measures are calculated using all the values in a data set.
B) Both measures are affected by outliers.
C) Both measures divide the data into two equal halves.
D) Both measures can only be used for small sample sizes.
Answer: B
Diff: 1
Blooms: Understand
49) Which of the following is an example of a measure of dispersion?

A) median
B) mode
C) variance
D) midrange
Answer: C
Diff: 1
Blooms: Remember
LO1: List different measures of dispersion.

50) Which of the following describes dispersion in statistics?

A) the degree of variation in the data
B) the central value in the data
C) the frequency of values in the data
D) the measure of outliers in the data
Answer: A
Diff: 1
Blooms: Remember
51) The difference between the first and third quartiles is referred to as the .
A) standard deviation
B) variance
C) interquartile range
D) midrange
Answer: C
Diff: 1
Blooms: Remember
52) Which of the following is true of midspread?

A) It is an example of a measure of location.
B) It is calculated by finding the difference between the highest and lowest values in the data set.
C) It is affected by extreme values.
D) It is calculated using only the middle 50% of the data.
Answer: D
Diff: 1
Blooms: Understand
53) Which of the following describes variance?

A) It is the difference between the maximum value and the minimum value in the data set.
B) It is the difference between the first and third quartiles of a data set.
C) It is the average of the squared deviations of the observations from the mean.
D) It is the average of the greatest and least values in the data set.
Answer: C
Diff: 1
Blooms: Remember

54) Which of the following is true of variance?

A) The formula to calculate variance of a population is not the same as the formula to calculate
variance of a sample.
B) Its value is inversely proportional to the degree to which the data is spread from the mean.
C) It only requires the middle 50% of data to be calculated.
D) It is the square root of standard deviation.
Answer: A
Diff: 1
Blooms: Understand
55) Which of the following describes standard deviation?

A) It is the average of the greatest and least values in the data set.
B) It is the square root of the variance.
C) It is the difference between the first and third quartiles of a data set.
D) It is the average of the squared deviations of the observations from the mean.
Answer: B
Diff: 1
Blooms: Remember
56) states that for any set of data, the proportion of values that lie within k standard
deviations (k > 1) of the mean is at least 1 - 1/k2.
A) Prime number theorem
B) Bertrand's postulate
C) Oppermann's conjecture
D) Chebyshev's theorem
Answer: D
Diff: 1
Blooms: Remember
LO1: Explain Chebyshev's theorem.
57) Using Chebyshev's theorem for standard deviation, calculate the percentage of data that lie
within five standard deviations of the mean.
A) 89%
B) 75%
C) 96%
D) 50%
Answer: C
Diff: 2

Blooms: Apply
LO1: Explain Chebyshev's theorem.
58) In the equation Cp = (upper specification - lower specification)/total variation, what does Cp
denote?
A) capacity variation index
B) capability pattern
C) process capability index
D) capability push
Answer: C
Diff: 1
Blooms: Remember
59) Which of the following is the z-score equation for the ith observation?
A) zt =
B) zi =
C) z1=
D) zi =
Answer: B
Diff: 1
Blooms: Remember
LO1: Compute a standardized value (z-score) for observations in a data set.
60) In the z-score formula, which of the following is true if the value in the numerator is a
negative value?
A) that the xi value lies to the left of the mean
B) that the mean is of lesser value than the xi value
C) that the mean is of negative value
D) that the numerator value cannot be divided by the standard deviation
Answer: A
Diff: 2
Blooms: Understand


61) A z-score of 1.0 means that .

A) the observation is -1.0 standard deviation to the right of the mean
B) the observation is -1.0 standard deviation to the left of the mean
C) the observation has no deviation from the mean
D) the observation is 1.0 standard deviation to the right of the mean
Answer: D
Diff: 2
Blooms: Understand
62) Which of the following is the equation for calculating the coefficient of variation (CV)?
A) CV = standard deviation/mean
B) CV = standard deviation - z-score/mean (total variation)
C) CV = value of observation's distance from mean/standard deviation
D) CV = mean/(standard
deviation)2 Answer: A
Diff: 2
Blooms: Understand
LO1: Define and compute the coefficient of variation.
63) How is the return to risk described in financial statistics?

A) as the relative measure of the distance an observation is from the mean
B) as the reciprocal of coefficient of variation
C) as the square root of variance
D) as the ratio of excess returns to its standard deviation
Answer: B
Diff: 1
Blooms: Understand

64) Describe and construct a cross-tabulation showing the region-wise percentage breakdown of
purchase of glass bottles and silver spoons and visually represent the data in a 3-D column chart.
Counts:
Region Glass Bottle Silver Spoon Grand Total
Almeco 6 79 85
Antasia 0 184 184
Puitoria 13 30 43
Percentages by Region:
Region Glass Bottle Silver Spoon Grand Total
Almeco 7% 93% 100%
Antasia 0% 100% 100%
Puitoria 30% 70% 100%
Answer: Construct a pivot table with regions as the row labels and filtering the items to include
only glass bottle and silver spoon. Compute the percentage purchase within each region and
construct a chart on that data.
Diff: 3
Blooms: Apply
Topic: PivotTables

65) In finance, the is the ratio of a fund's excess returns (annualized total returns
minus Treasury bill returns) to its standard deviation.
A) field ratio
B) Sortino ratio
C) Calmar ratio
D) Sharpe ratio
Answer: D
Diff: 1
Blooms: Remember
66) Calculate the coefficient of variation from the following data:

z-score = 1.32; standard deviation = 0.173; mean = 4.7; total variation = 0.6
A) 27.16
B) 156.66
C) 0.04
D) -0.5
Answer: C
Diff: 2
Blooms: Apply
67) Which of the following values of the coefficients of variation of stocks represents the least
risky stock?
A) 1.0
B) 0.005
C) 0.5
D) 0.045
Answer: B
Diff: 2
Blooms: Understand
68) Which of the following describes a positively skewed histogram?

A) a histogram that tails off toward the right
B) a histogram that has no fluctuation in mass
C) a histogram where more mass tails off toward the left
D) a histogram where mass is only concentrated in the middle
Answer: A

Diff: 1
Blooms: Remember
LO1: Explain the nature of skewness and kurtosis in a distribution.
69) The measures the degree of asymmetry of observations around the mean.
A) coefficient of variation
B) return to risk factor
C) coefficient of skewness
D) coefficient of kurtosis
Answer: C
Diff: 1
Blooms: Remember
70) The coefficient of skewness is computed as .
A) CS = )3
B) CS =
C) CS =
D) CS =
Answer: D
Diff: 1
Blooms: Remember
LO1: Interpret the coefficients of skewness and kurtosis.
71) Which of the following is true of the coefficient of skewness (CS)?

A) If the CS is positive, the distribution of values tails off to the left.

B) If the CS value is between 0.5 and 1, the skewness is considered to be moderate.

C) If the CS is closer to zero, the degree of skewness is considered to be high.
D) If the CS value is between -0.5 and -1, the skewness is considered negligible.
Answer: B
Diff: 1
Blooms: Remember
72) In statistics, refers to the peakedness or flatness of a histogram.

A) Sharpe ratio
B) entropy rate
C) Markov chain
D) kurtosis
Answer: D
Diff: 1
Blooms: Remember
73) Which of the following cases require the mean of a sample to be calculated using the formula
x
where N represents the sample size?
A) the sample has no mode value
B) there is direct access to the raw data
C) sample data are grouped in a frequency distribution
D) the coefficient of skewness is 1 or less than -1
Answer: C
Diff: 1
Blooms: Understand
Topic: Computing Descriptive Statistics for Frequency Distributions
LO1: Calculate the mean, variance, and standard deviation for grouped data.
74) The is a formal statistical measure for categorical data, such as defects or errors in
quality control applications or consumer preferences in market research.
A) variance
B) proportion
C) mean
D) skewness
Answer: B

Diff: 1
Blooms: Remember
Topic: Descriptive Statistics for Categorical Data: The Proportion
LO1: Calculate a proportion.
75) is a measure of the linear association between two variables, X and Y.

A) Kurtosis
B) Proportion
C) Skewness
D) Covariance
Answer: D
Diff: 1
Blooms: Remember
Topic: Measures of Association
LO1: Explain the importance of understanding relationships between two variables. Explain the
difference between covariance and correlation.
76) Which of the following formula is used to compute covariance between two variables X and
Y?
N
 (x i   x )( yi   y
)
i1
A) cov (X,Y) =
N
(x   )
N 2
i x
i1
B) cov (X,Y) =
N
(x   )
N 2
 (y )
i x
C) cov (X,Y) =
i1 i y
N
 (x   ) ix
i1
2
D) cov (X,Y) =
N2
Answer: A
Diff: 1
Blooms: Remember
77) Which of the following is true of covariance, between two variables, when one of the
deviations from the mean is positive and the other is negative?
A) the degree of linear association is high between the two variables
B) there is no covariance between the two variables

C) the covariance will be negative

D) the covariance will be positive
Answer: C
Diff: 2
Blooms: Understand
78) is a measure of the linear relationship between two variables, X and Y, which does
not depend on the units of measurement.
A) Kurtosis
B) Proportion
C) Skewness
D) Correlation
Answer: D
Diff: 1
Blooms: Remember
79) Which of the following is the equation used for computing the sample correlation
coefficient?
A)
rxy = cov(X,Y)(sxsy)
B)
rxy =
C)
rxy =
D)
rxy =
Answer: B
Diff: 1
Blooms: Remember
LO1: Calculate measures of covariance and correlation.
80) For two variables, a positive correlation coefficient indicates .

A) a linear relationship exists for which one variable increases as the other also increases
B) a linear relationship exists for one variable that increases while the other decreases

C) that the two variables have no linear relationship with each other
D) a nonlinear relationship with no linear correlation between the two variables
Answer: A
Diff: 2
Blooms: Understand
Use the spreadsheet below to answer the following question(s).
Below is the table showing rate of shoes sold per day and the highest-priced shoe sold that day
for a one-week period. The rate of shoes sold per day (X) and the price of the shoes (Y).
Shoes sold in % (X) Price (Y)

15 $48
27 $55
10 $40
13 $88
25 $53
9 $47
18 $40
81) Use Excel to calculate the mean for X.

A) 16.71
B) 7.04
C) 2.67
D) 0.02
Answer: A
Diff: 2
Blooms: Apply
82) Use Excel to calculate the variance of X.

A) 271.33
B) 16.47
C) 49.57
D) 7.04
Answer: C
Diff: 2

Blooms: Apply
LO1: Compute the range, interquartile range, variance, and standard deviation of a set of data.
83) Use Excel to calculate the standard deviation for Y.

A) 49.57
B) 16.47
C) 7.04
D) 2.6
Answer: B
Diff: 2
Blooms: Apply
84) Use Excel to calculate the covariance between variables X and Y.

A) 2.67
B) 0.02
C) 16.71
D) 7.04
Answer: A
Diff: 2
Blooms: Apply
85) Use Excel to calculate the z-score of X observation 27.

A) -0.24
B) 0
C) 0.18
D) 1.46
Answer: D
Diff: 2
Blooms: Apply

86) Use Excel to calculate the coefficient of variation of X.

A) 0.42
B) 0.31
C) 7.04
D) 16.47
Answer: A
Diff: 2
Blooms: Apply
87) Use Excel to calculate the correlation between variables X and Y.

A) 16.47
B) 0.02
C) 16.71
D) 7.04
Answer: B
Diff: 2
Blooms: Apply
88) Calculate the standard deviation for cost per order in the following table.
Observation Cost per order

X1 $ 1345
X2 $ 4364
X3 $ 1768
X4 $ 2278
X5 $ 4332
X6 $ 2984
X7 $ 3326
Answer: The formula for standard deviation, S = where n, is the number of

observations. (xi - )2 is the square of the difference between each observation minus the mean.
In order to calculate the standard deviation, we must first calculate the mean of all the cost per
order.

= , where, is the sum of observations, n, the number of observations.
Therefore, = 20397 / 7 = 2913.86.
Now, we have to calculate )2 , which is calculated by adding all the squares of each
observation minus the mean.
Cost per order

Observation in $ (xi - mean) (xi - mean)2
X1 1345 -1568.86 2461312.73
X2 4364 1450.14 2102914.31
X3 1768 -1145.86 1312988.59
X4 2278 -635.86 404314.31
X5 4332 1418.14 2011129.16
X6 2984 70.14 4920.02
X7 3326 412.14 169861.73
Sum 20397 8467440.86

Count 7
Mean 2913.86
Variance 1411240.14
Standard
Deviation 1187.96
Therefore, )2 = 8467440.86
From this variance can be calculated using = 8467440.86 / 6 = 1411240.14

Standard Deviation is the square root of variance, therefore, standard deviation = 1411240.14
= 1187.96.
Diff: 2
Blooms: Apply

89) Below is the data collected from a manufacturing process for a part whose dimensions are
specified as 4.00 ± 0.1 centimeters. Calculate the process capability index within three standard
deviations of the mean.
Manufacturing
Measurements
4.78
3.99
5.02
4.23
4.57
4.44
5.18
Answer: The process capability index, denoted as Cp = upper specification - lower specification
/ total variation.
Manufacturing
Measurements (Xi - mean {X}) (Xi - mean {X})2
4.78 0.18 0.032 Mean 4.6
Standard
3.99 -0.61 0.37 Deviation 0.424
5.02 0.42 0.18 Variance 0.18
4.23 -0.37 0.14 Mean -3*Stdev 3.33
4.57 -0.03 0.00099 Mean +3*Stdev 5.87
4.44 -0.16 0.03 Total Variation 2.54
5.18 0.58 0.33
Lower
Specification 3.9
Upper
Sum 1.08 Specification 4.1
Specification
Range 0.2
Cp .08
In order to calculate the process capability index, the mean of the measurements should be first
calculated using the formula: sum of all measurements / number of measurements.
The mean is found to be: 4.6.
From the mean, we calculate variation using the formula ; where n is the number of
observations. )2 is the sum of all the squares of each observation minus the mean.

The variation is found to be: 0.18.
The standard deviation is the square root of variance, therefor, standard deviation = 0.18 =
0.42.
Now Mean - 3*Stdev, and Mean + 3*Stdev are calculated.

Mean - 3*Stdev = 4.6 × 3(0.44) = 3.33, and,
Mean + 3*Stdev = 4.6 + 3(0.44) = 5.87.
Therefore total variation = (Mean + 3*Stdev) - (Mean - 3*Stdev) = 5.87 - 3.33 = 2.54.
The process capability index, Cp, is then calculated as 0.2 / 2.54 = 0.08.
Therefore, Cp = 0.08.
Diff: 2
Blooms: Apply
90) The table below shows the sales per day at a grocery store over a period of a week. Calculate
the z-score for sales on Day 4.
Sales per day in

Day $ (Xi)
1 5000
2 5304
3 6430
4 7889
5 5333
6 6109
7 6734
Answer: Z-score is calculated using the formula, z4 =, where s is the standard deviation, xi are
observations, is the mean of the observation.
Sales per day (Xi - mean (Xi - mean

Day in $ (Xi) {X}) {X})^2 z-score
1 5000 -1114.14 1241314.31 -1.10
2 5304 -810.14 656331.45 -0.80
3 6430 315.86 99765.73 0.31
4 7889 1774.86 3150117.88 1.75
5 5333 -781.14 610184.16 -0.77
6 6109 -5.14 26.44898 -0.005
7 6734 619.86 384222.88 0.61
Sum 42799 6141962.86

Mean 6114.14
Variance 1023660.48
Standard
Deviation 1011.76
First, the mean has to be calculated using the formula = , n is the number of
observations, and x are number of observations.

The mean is calculated to be: 42799/7 = 6114.14.
From the mean we calculate the variance using the formula s2 = , where (xi - )2 is
the sum of the squares of observations minus the mean.
Therefor variance is calculated as 6141962.86/6 = 1023660.48.
Standard deviation is the square root of variance, therefor, standard deviation = =
1011.76.
Now, the z-score for the 4th day can be calculated as 1774.86/1011.76 = 1.75.
Therefore, z4 = 1.75.
Diff: 2
Blooms: Apply

91) The table below shows the daily frequency of female customers at a particular ice cream
shop during discount sale periods. The data is collected for 5 days. Calculate the mean for the
data.
Female
Customer
Frequency
Days (x) Frequency (f)
1 0
2 5
3 8
4 11
5 18
Answer: For grouped data, mean, = , where n is the number of observations, and fixi
is individual frequencies multiplied by the corresponding number of days.
Female
Customer
Frequency
Frequency
Days (x) (f) Frequency*Days
1 0 0
2 5 10
3 8 24
4 11 44
5 18 90
Sum 42 168
Mean 4
First we multiply individual frequencies by their corresponding number of day. Then we add the
multiplied values to obtain .
Here, =168.
n is calculated to be 42.

Therefore, the mean, = 168/42 = 4.

= 4.
Diff: 2
Blooms: Apply
92) The following table lists the amounts paid in mortgages as a percentage of the household
income in the town Aponia. Calculate the variance and standard deviation of the data, if mean is
given as 22.4%. The percentage (x) values are estimated as midpoints of each percentage range.
Mortgage as a
percentage of
household income in
Aponia
Percentage Number of
Group in % (x) households (f)
0 - 10 5 4567
10 - 20 15 6562
20 - 30 25 3356
30 - 40 35 2975
40 - 50 45 1644
50 - 60 55 1376
Answer: For grouped data such as this, variance, s2 = , where n is the sum of
frequencies, and, is the sum of all the squares of each observation minus the mean.

Since mean is given, is calculated to be 453.9.
Note that the square of the deviations from the mean is divided by 10000 to simplify the
calculations.
Sum of frequencies is calculated to be 20480.
Substituting these values in the variance formula, we get, S2 = 453.9/20479 = 0.022.

Therefore, the variance value is 0.02.
Standard deviation is the square root of variance, therefore, standard deviation, s = = 0.15.
Therefore, the standard deviation value is 0.15.
Diff: 2
Blooms: Apply
93) A sample is a subset of a population.

Answer: TRUE
Diff: 1
Blooms: Remember
LO1: Explain the difference between a population and a sample.
94) One of the properties of the mean is that the sum of the deviations of each observation from
the mean is zero.
Answer: TRUE
Diff: 1
Blooms: Remember

95) For an odd number of observations, the median is the mean of the two middle numbers.
Answer: FALSE
Diff: 1
Blooms: Remember
96) The larger the variance, the more the data are spread out from the mean.
Answer: TRUE
Diff: 1
Blooms: Remember
97) According to the empirical rules of standard deviation in statistics, approximately 68% of the
observations will fall within three standard deviations of the mean.
Answer: FALSE
Diff: 2
Blooms: Apply
LO1: State the Empirical Rules and apply them to practical data.
98) Two different sets of data can never have the same z-
scores. Answer: FALSE
Diff: 1
Blooms: Understand
99) In stock trading, the higher the coefficient of variation for the stock, the smaller the relative
risk is for the return provided.
Answer: FALSE
Diff: 1
Blooms: Remember

100) Skewness describes the lack of symmetry of

data. Answer: TRUE
Diff: 1
Blooms: Remember
101) The value of a coefficient of skewness falling between 0.5 and -0.5 indicates relative
symmetry.
Answer: TRUE
Diff: 1
Blooms: Remember
102) If the distribution of observations are such that mode < median < mean, the histogram
would be said to be negatively skewed.
Answer: FALSE
Diff: 1
Blooms: Understand
103) Two variables can only have a statistical relationship if there is a cause-and-effect factor
between them.
Answer: FALSE
Diff: 1
Blooms: Understand
104) A correlation of 0 indicates that the two variables have no linear relationship with each
other.
Answer: TRUE
Diff: 1
Blooms: Remember
105) According to the interquartile range, extreme outliers are more than 3*IQR away from the
left of Q1 or to the right of Q3.
Answer: TRUE

Diff: 1
Blooms: Remember
Topic: Outliers
LO1: Identify outliers in data.
106) State the three empirical rules in standard deviation.

Answer: The three empirical rules in standard deviation are:
1. Approximately 68% of the observations will fall within one standard deviation of the mean,
or between x̅ - s and x̅ + s
2. Approximately 95% of the observations will fall within one standard deviation of the mean, or
between x̅ - 2s and x̅ + 2s
3. Approximately 99.7% of the observations will fall within one standard deviation of the mean,
or between x̅ - 3s and x̅ + 3s
Diff: 1
Blooms: Remember
LO1: State the Empirical Rules and apply them to practical data.
107) Give an account of Excel's Descriptive Statistics Tool.

Answer: Excel provides a useful tool for basic data analysis, Descriptive Statistics. Click on
Data Analysis in the Analysis group under the Data tab in the Excel menu bar. Select Descriptive
Statistics from the list of tools. You need to enter only the range of the data, which must be in a
single row or column. If the data are in multiple columns, the tool treats each row or column as a
separate data set, depending on which you specify. This means that if you have a single data set
arranged in a matrix format, you would have to stack the data in a single column before applying
the Descriptive Statistics tool. Check the box Labels in First Row if labels are included in the
input range. You may choose to save the results in the current worksheet or in a new one. For
basic summary statistics, check the box Summary statistics; you need not check any others. One
important point to note about the use of the tools in the Analysis Toolpak versus Excel functions
is that while Excel functions dynamically change as the data in the spreadsheet are changed, the
results of the Analysis Toolpak tools do not.
Diff: 1
Blooms: Remember
LO1: Use the Excel Descriptive Statistics tool to summarize data.
108) What are the different interpretations for correlation coefficient values?
Answer: A correlation of 0 indicates that the two variables have no linear relationship to each
other. Thus, when one variable changes, we cannot reasonably predict what the other variable
might do. A positive correlation coefficient indicates a linear relationship for which one variable
increases as the other also increases. A negative correlation coefficient indicates a linear
relationship for which one variable that increases while the other decreases.
Diff: 1

Blooms: Remember
109) How can outliers be identified in a data set?

Answer: Outliers can make a significant difference in the results we obtain from statistical analyses.
The first thing to do is to check the data for possible errors, such as a misplaced decimal point or an
incorrect transcription to a computer file. Histograms can help to identify possible outliers visually.
The empirical rule and z-scores can also be used to identify an outlier as one that is more than three
standard deviations from the mean. Outliers can also be identified based on the interquartile range.
"Mild" outliers are often defined as being between 1.5*IQR and 3*IQR to the left of Q1 or to the
right of Q3, and "extreme" outliers, as more than 3*IQR away from these quartiles.
Diff: 1
Blooms: Remember
Topic: Outliers
LO1: Identify outliers in data.
110) What is statistical thinking? How is it important to making business decisions?

Answer: Statistical thinking is a philosophy of learning and action for improvement that is based
on the principles that (1) all work occurs in a system of interconnected processes, (2) variation
exists in all processes, and (3) better performance results from understanding and reducing
variation.
Understanding business processes provides the context for determining the effects of variation
and the proper type of action to be taken. Any process contains many sources of variation.
Statistical analysis can provide better insight into the facts and nature of relationships among the
many factors that may have contributed to an event and enable managers to make better
decisions.
Diff: 2
Blooms: Understand
Topic: Statistical Thinking in Business Decisions
LO1: State the principles of statistical thinking.
111) Which of the following can be used to quickly create cross-tabulations?

A) Frequency distribution
B) COUNTIF function
C) PivotTable
D) Sort & Filter
Answer: C
Diff: 1
Blooms: Remember
Topic: PivotTables

Chapter 5: Probability Distributions and Data Modeling
1) Which of the following is true about the classical definition of probability?

A) It is based on judgment and experience.
B) If the process that generates the outcomes is known, probabilities can be deduced from
theoretical arguments.
C) The probability that an outcome will occur is simply the relative frequency associated with
that outcome.
D) It is based on observed data.
Answer: B
Diff: 1
Blooms: Knowledge
Topic: Basic Concepts of Probability
LO1: Explain the concept of probability and provide examples of the three definitional
perspectives of probability.
2) John and Mike were offered mints. What is the probability that at least John or Mike would
respond favorably? (Hint: Use the classical definition).
A)
B)
C)
D)
Answer: C
Diff: 2
Blooms: Apply
LO1: Use probability rules and formulas to perform probability calculations.
3) Consider an event X comprised of three outcomes whose probabilities are , , and .

Compute the probability of the complement of the event.
A)
B)
C)
D)

92
Chapter 5: Probability Distributions and Data Modeling Business Analytics, 3e 93
Answer: A
Diff: 3
Blooms: Apply
In an event X, the probability of rolling a sum of 8 on two dice is while the probability of
rolling an 11 is . In another event Y, the probability of rolling a 2 is , the probability of
rolling a 9 is , and the probability of rolling a 4 is .
4) What is the probability that either event X or Y occurs?
A)
B)
C)
D)
Answer: B
Diff: 3
Blooms: Apply
5) What is probability that neither X nor Y will occur?
A)
B)
C)
D)
Answer: D
Diff: 3
Blooms: Apply

94 Chapter 5: Probability Distributions and Data Modeling Business Analytics, 3e

6) Consider an event Z that includes all outcomes of rolling two dice whose sum is odd. What is
the probability that either event Y or Z occurs?
A)
B)
C)
D)
Answer: B
Diff: 3
Blooms: Apply
7) Which of the following computes the probability of an event P given that event Q is known to
have occurred?
A) P(P|Q) = P(P and Q) / P(Q)
B) P(Q|P) = P(Q) - P(P)
C) P(P|Q) = P(Q) - P(P or Q)
D) P(Q|P) = P(P or Q) - P(Q)
Answer: A
Diff: 1
Blooms: Knowledge
LO1: Explain conditional probability and how it can be applied in a business context.

15 students were asked to choose between the broad categories of Arts, Science, and Math as
their preferred area of study.
Respondent Gender Preference

1 Female Arts
2 Male Science
3 Male Math
4 Female Arts
5 Female Math
6 Male Science
7 Male Math
8 Male Math
9 Female Arts
10 Male Arts
11 Male Science
12 Female Science
13 Female Math
14 Male Arts
15 Female Arts
8) What is the probability that a respondent is male and prefers Arts?
A)
B)
C)
D)
Answer: C
Diff: 2
Blooms: Apply

9) What is the probability that a respondent prefers Science given that the respondent is female?
A)
B)
C)
D)
Answer: B
Diff: 2
Blooms: Apply
10) Use the multiplication law of probability to compute the probability that the respondent is
male and prefers Math.
A)
B)
C)
D)
Answer: D
Diff: 3
Blooms: Apply
LO1: Apply the multiplication law of probability.
11) Identify the correct statement from the following.

A) The events that a respondent is female and chooses Math are not independent.
B) All events are independent of each other.
C) The events that a respondent is male and chooses Science are not dependent.
D) The events that a respondent is female and that she chooses Science are independent.
Answer: A
Diff: 3
Blooms: Apply
LO1: Determine if two events are independent using probability arguments.
12) Which of the following will hold true if events X and Y are independent?
A) P(X) = P(Y) × P(X and Y)
B) P(Y) = P(X|Y)
C) P(X and Y) = [P(X) + P(Y)] - P(X or Y)
D) P(X) = P(X|Y)
Answer: D
Diff: 2
Blooms: Knowledge
13) Which of the following is a continuous random variable?

A) the outcomes of rolling two dice
B) the time to complete a specific task
C) the number of new hires in a year
D) the number of hits on a Web site link
Answer: B
Diff: 2
Blooms: Understand
Topic: Random Variables and Probability Distributions
LO1: Explain the difference between a discrete and a continuous random variable.
14) While rolling two dice, what is the probability of rolling a sum of 7 or more?
A)
B)
C)
D)
Answer: A
Diff: 3
Blooms: Apply
Topic: Discrete Probability Distributions
LO1: Use the cumulative distribution function to compute probabilities over intervals.

15) The of a random variable corresponds to the notion of the mean, or average, for a
sample.
A) mode
B) variance
C) expected value
D) standard deviation
Answer: C
Diff: 1
Blooms: Knowledge
LO1: Compute the expected value and variance of a discrete random variable.
16) For a discrete random variable X, which of the following computes the expected value?
A)
B)
C)
D)
Answer: B
Diff: 1
Blooms: Knowledge
17) Which of the following is a weighted average of the squared deviations from the expected
value?
A) skewness
B) mean difference
C) kurtosis
D) variance
Answer: D
Diff: 1
Blooms: Knowledge

18) Which of the following formulas will compute the variance of a discrete random variable X?
A) ∑n (𝑥j − 𝐸[𝑋]2)
j=1
B) ∑œ 2
j=1 𝐸[𝑋] 𝑓(𝑥j)
C) ∑œ (𝑥 2
− 𝐸[𝑋]) 𝑓(𝑥 )
j=1 j j
D) ∑œ 2
j=1 𝑥J 𝑓(𝑥j)
Answer: C
Diff: 1
Blooms: Knowledge
19) Which of the following is true about variance?

A) It measures the uncertainty of a random variable.
B) Higher variance implies low uncertainty.
C) It is the square root of a random variable's standard deviation.
D) It is the weighted average of all possible outcomes.
Answer: A
Diff: 2
Blooms: Understand
20) Which of the following characterizes a random variable having two possible outcomes, each
with a constant probability of occurrence?
A) Beta distribution
B) Bernoulli distribution
C) Poisson distribution
D) Binominal distribution
Answer: B
Diff: 1
Blooms: Knowledge
LO1: Calculate probabilities for the Bernoulli, binomial, and Poisson distributions, using the
probability mass function and Excel functions.

21) Which of the following is the probability mass function of the Bernoulli distribution?
A)
B)
C)
D)
Answer: A
Diff: 1
Blooms: Knowledge
22) The binominal distribution:

A) is a discrete distribution used to model the number of occurrences in some unit of measure.
B) assumes that the average number of occurrences per unit is a constant and that occurrences
are independent.
C) is symmetric irrespective of the value of the probability of success.
D) models n independent replications of a Bernoulli experiment, each with a probability p of
success.
Answer: D
Diff: 2
Blooms: Understand
23) Which of the following is true of the binomial distribution?

A) The expected value of the binomial distribution is np(1 - p), where n is the number of
experiments and p is the probability of success.
B) The binomial distribution can assume different shapes and amounts of skewness, depending
on the parameters.
C) In Excel's binomial distribution function, setting cumulative to TRUE will provide the
probability mass function for a specified value.
D) The expected value of the binomial distribution is λ, a constant.
Answer: B
Diff: 2
Blooms: Understand


On an average, the number of students that choose to study Arts subjects at Greyin Tide
University is 17 each year. (Hint: Use Poisson distribution formula).
24) What is the probability that exactly 13 students will take up Arts in the coming year?
A) 0.08795
B) 0.20087
C) 0.04798
D) 0.06585
Answer: D
Diff: 3
Blooms: Apply
25) What is the probability of 8 takers or less for Arts subjects in the coming year?
A) 0.00716
B) 0.01260
C) 0.03164
D) 0.04744
Answer: B
Diff: 3
Blooms: Apply
26) A probability density function:

A) is the probability distribution of discrete outcomes.
B) suggests that the probability that a random variable assumes a specific value must be positive.
C) characterizes outcomes of a continuous random variable.
D) can yield negative values depending on the values of the random variable, X.
Answer: C
Diff: 1
Blooms: Knowledge+

Topic: Continuous Probability Distributions

LO1: List the key properties of probability density functions.
27) Which of the following is true about probability density functions?

A) A graph of the density function must lie at or below the x-axis.
B) The total area under the density function below the x-axis is 2.0.
C) It calculates the probability of a random variable lying within a certain interval.
D) P (a) x P (b) is the area under the density function between two numbers a and b.
Answer: C
Diff: 2
Blooms: Understand
LO1: List the key properties of probability density functions.
28) Which of the following characterizes a continuous random variable for which all outcomes
between some minimum and maximum value are equally likely?
A) exponential distribution
B) uniform distribution
C) normal distribution
D) lognormal distribution
Answer: B
Diff: 1
Blooms: Knowledge
LO1: Use the probability density and cumulative distribution functions to calculate probabilities
for a uniform distribution.
29) Which of the following is true of normal distributions?

A) The mean, median, and mode are all equal.
B) Its measure of skewness is always greater than 1.
C) The range of the random variable X is bounded.
D) Mathematical formulas make it easier to compute normal distributions.
Answer: A
Diff: 2
Blooms: Remember
LO1: Describe the normal and standard normal distributions and use Excel functions to calculate
probabilities.
30) The exponential distribution:

A) has the density function f (x) = e-λx , for x ≥ 0.
B) models the time between randomly occurring events.

C) has an expected value λ.

D) is described by the familiar bell-shaped curve.
Answer: B
Diff: 2
Blooms: Knowledge
LO1: Describe properties of the exponential distribution and compute probabilities.
At a casino, a combination of two spinners is used to decide the winner based on the sum of
scores from spinning. The spinners each have four colored spaces - red, yellow, blue, and green.
Red = 1, Yellow = 2, Blue = 3, and Green = 4
31) What is the probability that the spinners land on colors summing up to exactly 3?
Answer: There are 16 outcomes. The following is a breakdown of all possible sums and their
frequencies.
Outcome x Frequency f(x) F(x)

2 10.0625 0.0625
3 20.1250 0.1875
4 30.1875 0.3750
5 40.2500 0.6250
6 30.1875 0.8125
7 20.1250 0.9375
8 10.0625 1.0000
The probability that the spinners land on colors summing up to exactly 3 = 0.1250
Diff: 1
Blooms: Apply
32) Compute the expected value of the random variable that denotes the possible summed scores
from the two spinners.
Answer: For a discrete random variable X, the expected value, denoted E[X], is the weighted
average of all possible outcomes, where the weights are the probabilities:

E[X] =
Outcome, x Frequency Probability, f(x) xf(x)

2 1 1/16 1/8
3 2 1/8 3/8
4 3 3/16 3/4
5 4 1/4 5/4
6 3 3/16 9/8
7 2 1/8 7/8
8 1 1/16 1/2
Expected value 5
Diff: 3
Blooms: Apply
33) Compute the variance of the random variable that denotes the possible summed scores from
the two spinners.
Answer: The variance, Var[X], of a discrete random variable X as a weighted average of the
squared deviations from the expected value:
Var[X] =
Outcome,
X Probability, f(x) xf(x) (x-E[X]) (x-E[X])2 (x-E[X])2f(x)
2 1/16 1/8 -3 9 9/16
3 1/8 3/8 -2 4 1/2
4 3/16 3/4 -1 1 3/16
5 1/4 5/4 0 0 0
6 3/16 9/8 1 1 3/16
7 1/8 7/8 2 4 1/2
8 1/16 1/2 3 9 9/16
Expected Value 5 Variance 2 1/2
Diff: 3
Blooms: Apply

The profit from selling folding tables varies uniformly each quarter between $1,500 and $2,300.
34) What is the probability that profit will be less than $1,900?
Answer:
F(1,900) = (1,900 - 1,500) / (2,300 - 1,500) = 0.50

Diff: 3
Blooms: Apply
35) What is the probability that profit will be between $2,000 and $2,200?
Answer: P(2,000 ≤ X ≤ 2,200) = P(X ≤ 2,200) - P(X ≤ 2,000) = F(2,200) - F(2,000)
Since quarterly profit here follows a uniform distribution , where a =
$1,500 and b = $2,300, the probability that profit will be between $2,000 and $2,200 =
- = 0.25
Diff: 3
Blooms: Apply
36) If P(X|Y) = P(X), it implies that event Y is dependent on event X.

Answer: FALSE
Diff: 1
Blooms: Knowledge

37) The expected value and variance of the Poisson distribution are equal to λ.
Answer: TRUE
Diff: 1
Blooms: Knowledge
38) The Excel function NORM.DIST finds probabilities for the standard normal distribution.
Answer: FALSE
Diff: 1
Blooms: Knowledge
probabilities.
39) How are probability, experiment, outcome, and sample space related to each other?
Answer: Probability is the likelihood that an outcome will occur. An experiment is a process
that results in an outcome. The outcome of an experiment is a result that is observed. The
collection of all possible outcomes of an experiment is called the sample space.
Diff: 1
Blooms: Knowledge
LO1: Explain the concept of probability and provide examples of the three definitional
perspectives of probability.
40) What are the properties of a probability mass function?

Answer: A probability mass function has the properties that (1) the probability of each outcome
must be between 0 and 1 and (2) the sum of all probabilities must add to 1; that is,
0 ≤ f(xi) ≤ 1, for all i
Diff: 2
Blooms: Understand
LO1: Verify the properties of a probability mass function.
41) Explain the similarity between the formulas for computing population mean and expected
value of discrete random variable X.
Answer: For a discrete random variable X, the expected value, denoted E[X], is the weighted
average of all possible outcomes, where the weights are the probabilities:

The population mean can be computed using the formula:
μ=
If this formula is written as the sum of xi multiplied by (fi / N), then fi / N can be thought of as
the probability of xi. Then this expression for the mean has the same basic form as the expected
value formula.
Diff: 2
Blooms: Understand
42) How can normal probabilities be computed using Excel? Given the cumulative probability,
how can the value of the random variable be found?
Answer: The Excel 2010 function NORM.DIST(x, mean, standard_deviation, cumulative)
computes normal probabilities. NORM.DIST(x, mean, standard_deviation, TRUE) calculates the
cumulative probability F (x) = P (X ≤ x) for a specified mean and standard deviation. The Excel
function NORM.INV(probability, mean, standard_dev) can be used to compute the value of x if
the cumulative probability is known. In this function, probability is the cumulative probability
value corresponding to the value of x which is sought.
Diff: 2
Blooms: Understand
probabilities.

Chapter 6: Sampling and Estimation
1) A is a description of the approach that is used to obtain samples from a population

prior to any data collection activity.
A) population frame
B) sampling weight
C) sampling plan
D) probability interval
Answer: C
Diff: 1
Blooms: Remember
Topic: Statistical Sampling
LO1: Describe the elements of a sampling plan.
2) Which of the following is true of judgment sampling?

A) It selects samples based on expert opinion.
B) It selects samples based on ease of data collection.
C) It selects samples based on random procedures.
D) It selects samples based on full representation of all subsets in a population.
Answer: A
Diff: 1
Blooms: Remember
LO1: Explain the difference between subjective and probabilistic sampling
3) Which of the following types of sampling involves using random procedures to select a sample?
A) judgment sampling
B) probabilistic sampling
C) subjective sampling
D) convenience sampling
Answer: B
Diff: 1
Blooms: Remember
4) involves selecting items from a population so that every subset of a given size has
an equal chance of being selected.
A) Convenience sampling
B) Subjective sampling
C) Judgment sampling
D) Simple random sampling

108
Chapter 6: Sampling and Estimation Business Analytics, 3e 109
Answer: D
Diff: 1
Blooms: Remember
5) Which of the following sampling methods bases its selection of samples on the ease of data
collection?
A) probabilistic sampling
B) judgment sampling
C) simple random sampling
D) convenience sampling
Answer: D
Diff: 1
Blooms: Remember
6) Which of the following describes periodic sampling?

A) It is a sampling method based solely on expert opinion.
B) It is a sampling method based on selecting a time and then sampling the products after that
time.
C) It is a sampling method based on selecting every nth item from a population.
D) It is a sampling method exclusively used for population that is divided into subsets.
Answer: C
Diff: 1
Blooms: Remember
LO1: Explain how to conduct simple random sampling and use Excel to find a simple random
sample from an Excel database
7) sampling applies to populations that are divided into natural subsets and allocates
the appropriate proportion of samples to each subset.
A) Systematic
B) Stratified
C) Cluster
D) Continuous process
Answer: B
Diff: 1
Blooms: Remember
LO1: Explain systematic, stratified, and cluster sampling and sampling from a continuous
process.

110 Chapter 6: Sampling and Estimation Business Analytics, 3e
8) is based on dividing a population into subgroups, sampling a set of subgroups, and

conducting a complete census within the subgroups sampled.
A) Cluster sampling
B) Continuous process sampling
C) Judgment sampling
D) Systematic sampling
Answer: A
Diff: 1
Blooms: Remember
LO1: Explain systematic, stratified, and cluster sampling and sampling from a continuous
process.
9) In sampling, involves assessing the value of an unknown population parameter–

such as a population mean, population proportion, or population variance–using sample data.
A) distribution
B) randomization
C) estimation
D) substitution
Answer: C
Diff: 1
Blooms: Remember
Topic: Estimating Population Parameters
LO1: Explain the importance of unbiased estimators
∑(s–s̅)2
10) From the standard deviation , identify the estimator.
formula, n–1
A) s2
B) σ2
C) 𝑥̅
D) s
Answer: A
Diff: 1
Blooms: Remember
Topic: Topic: Estimating Population Parameters
11) A(n) is a single number derived from sample data that is used to estimate the value
of a population parameter.
A) confidence interval
B) frequentist interference
C) interval estimate
D) point estimate

Answer: D
Diff: 1
Blooms: Remember
12) For which of the following is the value of the estimator said to be biased?
A) if the expected value of the estimator does not equal the population parameter
B) if the expected value of the estimator equals the population parameter
C) only if the expected value of the estimator is zero
D) only if the expected value of the estimator goes below zero
Answer: A
Diff: 1
Blooms: Remember
13) Which of the following is true of an unbiased estimator value?

A) The expected value will align perfectly with the population mean.
B) The expected value will not equal the population's parameters.
C) The expected value will not be greater than zero.
D) The expected value will equal the population's parameter.
Answer: D
Diff: 1
Blooms: Remember
LO1: Explain the importance of unbiased estimators.
14) Which of the following accurately describes a sampling distribution of the mean?
A) It is the mean of any one sample from a group of related populations of different sizes.
B) It is the mean distribution of any one sample from a group of samples of varying sizes from a
population.
C) It is the mean of half the samples from a related group of populations.
D) It is the distribution of the means of all possible samples of fixed size n from a population.
Answer: D
Diff: 1
Blooms: Remember
Topic: Sampling Distributions
LO1: Define the sampling distribution of the mean.

15) Which of the following is the inherent reason why sampling errors occur?
A) because samples represent the whole population
B) because samples are only a subset of the population
C) because samples never provide enough data to estimate standard deviation
D) because the means cannot be accurately estimated using samples
Answer: B
Diff: 1
Blooms: Understand
LO1: Describe the difference between sampling error and nonsampling error
16) are statistical errors that are due to the sample not representing the target
population adequately.
A) Parallax errors
B) Sampling errors
C) Nonsampling errors
D) Quantization errors
Answer: C
Diff: 1
Blooms: Understand
LO1: Describe the difference between sampling error and nonsampling error.
17) The means of all possible samples of a fixed size n from some population will form a
distribution which is known as the .
A) corollary of the mean
B) sampling distribution of the mean
C) standard error of the mean
D) point estimate
Answer: B
Diff: 1
Blooms: Remember
Topic: Sampling Distribution
18) Which of the following is the equation for calculating the standard error of the mean?
A)
B) (𝑥I − 𝑥̅)𝑛
C) 𝜎√𝑛
D) 𝜎/√𝑛

Answer: D
Diff: 1
Blooms: Remember
LO1: Calculate the standard error of the mean.
19) Which of the following is implied from the standard error of the mean formula?
A) that true means of populations can be found easier than those of samples
B) that standard deviation increases with increase in sample size
C) that larger sample sizes provide greater accuracy in estimating the true population mean
D) that the true mean of the population can only be calculated using smaller sample sizes
Answer: C
Diff: 1
Blooms: Remember
20) The Ransin Sports Company has noted that the size of individual customer orders is
normally distributed with a mean of $112 and a standard deviation of $9. Which of the following
is the answer for the probability that the next individual who buys a product will make a
purchase of more than $116?
A) 71%
B) 48%
C) 33%
D) 42%
Answer: C
Diff: 2
Blooms: Apply
normally distributed with a mean of $112 and a standard deviation of $9. If a soccer team of 11
players were to make the next batch of orders, what would be the standard error of the mean?
A) 1.64
B) 2.71
C) 3.67
D) 0.82
Answer: B
Diff: 2
Blooms: Apply


normally distributed with a mean of $112 and a standard deviation of $9. If a soccer team of
11 players were to make the next batch of orders, what is the probability that the mean
purchase would exceed $116?
A) 11%
B) 3%
C) 33%
D) 7%
Answer: D
Diff: 2
Blooms: Apply
23) states that if the sample size is large enough, the sampling distribution of the mean
is approximately normally distributed, regardless of the distribution of the population and that
the mean of the sampling distribution will be the same as that of the population.
A) Chebyshev's theorem
B) Central limit theorem
C) Prime number theorem
D) Oppermann's
conjecture Answer: B
Diff: 1
Blooms: Remember
LO1: Explain the practical importance of the central limit theorem.
24) The central limit theorem states that if the population is normally distributed, then the
.
A) mean of the population can be calculated without using samples
B) standard error of the mean will not vary from the population mean
C) sampling distribution of the mean will vary from sample to sample
D) sampling distribution of the mean will also be normal for any sample size
Answer: D
Diff: 1
Blooms: Understand
LO1: Explain the practical importance of the central limit theorem.

25) Which of the following is a difference between interval estimates and point estimates?
A) Point estimates cannot be used to calculate statistical error, while interval estimate is used to
calculate statistical error.
B) Point estimates provide only a single value for a sample, while interval estimates provide a
range of values.
C) Point estimates indicate the magnitude of potential error in the estimate, while interval
estimates don't.
D) Point estimates on an average provide more information than interval estimates.
Answer: B
Diff: 2
Blooms: Understand
Topic: Interval Estimates
LO1: Explain how an interval estimate differs from a point estimate.
26) A is a range of values between which the value of the population parameter is
believed to be, along with a probability that the interval correctly estimates the true population
parameter.
A) point estimate
B) frequentist interference
C) confidence interval
D) fiducial inference
Answer: C
Diff: 1
Blooms: Remember
LO1: Define and give examples of confidence intervals.
27) A 100(1-α)% confidence interval for the population mean μ based on a sample of size n with
a sample mean 𝑥̅ and a known population standard deviation σ is given by .
A) x  za / 2(n 1)( n )
( / n )
B) x za /2
C) x / ( / n )
D) x  za /2 ( / n )
Answer: D
Diff: 1
Blooms: Remember

28) For the formula for calculating the confidence level with known standard deviation, the value
represents the value of a standard normal random variable with a cumulative
probability of 1 - α / 2.
A) σ / √𝑛
B) za/2
C)
D) xi -
Answer: B
Diff: 1
Blooms: Remember
29) The is a family of probability distributions with a shape similar to the standard
normal distribution.
A) log-normal distribution
B) Gaussian q-distribution
C) frequentist interference
D) t-distribution
Answer: D
Diff: 1
Blooms: Remember
LO1: Describe the difference between the t-distribution and the normal distribution.
30) Which of the following is a difference between the t-distribution and the standard normal
distribution?
A) The t-distribution cannot be calculated without a known standard deviation, while
the standard normal distributions can be.
B) The standard normal distribution's confidence levels are wider than those of the t-distribution.
C) The t-distribution has a larger variance than the standard normal distribution.
D) The standard normal distribution is dependent on parameters like degrees of freedom, while t-
distribution is not.
Answer: C
Diff: 2
Blooms: Understand

31) Which of the following is true of the t-distribution?

A) It has narrower confidence intervals than the standard normal distribution.
B) It is only used to calculate confidence intervals where there is no known population standard
deviation.
C) It converges to the standard normal distribution as degrees of freedom increase.
D) It does not require parameters such as degrees of freedom.
Answer: C
Diff: 2
Blooms: Understand
32) Which of the following is true of calculating confidence intervals for larger samples?
A) For larger samples, the t-distribution is indistinguishable from the standard normal
distribution.
B) For larger samples, both the t-distribution and the standard normal distribution require
standard deviation values to be calculated.
C) For larger samples, the degrees of freedom cannot be calculated accurately.
D) For larger samples, only z-values provide a true sampling distribution of the mean.
Answer: A
Diff: 2
Blooms: Understand
33) Which of the following types of distributions use z-values to establish confidence intervals?
A) Gaussian q-distribution
B) t-distribution
C) log-normal distribution
D) standard normal distribution
Answer: D
Diff: 1
Blooms: Remember

The historical data of Velvetta Inc., a healthcare products manufacturer, have shown that in a
production process for filling bottles of shampoo, variance in the volume is constant; however,
clogs in the filling machine often affect the mean volume. The historical standard deviation is 5
milliliters. In filling 250-milliliter bottles, a sample of 20 found a mean volume of 242 milliliters.
Velvetta Inc. Shampoo

Production
Alpha Value 0.05
Standard Deviation 5
Sample Size 20
Sample Mean 242
34) Based on the data in the table above, calculate the margin of error at 95% confidence
interval.
A) 1.84
B) 2.19
C) 2.51
D) 1.96
Answer: B
Diff: 1
Blooms: Apply
35) Calculate the 𝑧α/2 value at a 95% confidence interval.

A) 1.64
B) 1.84
C) 1.96
D) 2.19
Answer: C
Diff: 1
Blooms: Apply

36) From the table above, determine the cumulative probability for z at a 95% confidence level.
A) 0.975
B) 0.950
C) 1
D) 0.987
Answer: A
Diff: 1
Blooms: Apply
37) From the table above, calculate the lower confidence interval estimate at a confidence level
of 95%
A) 239.49
B) 240.16
C) 239.81
D) 240.04
Answer: C
Diff: 1
Blooms: Apply
38) The formula for a 100(1 - α)% confidence interval for the mean μ when the population
standard deviation is unknown is .
A) /(σ / √𝑛)
B) ± tα/2n-1(s / √𝑛)
C) ± zα/2 (σ/ √𝑛)
D)
Answer: B
Diff: 1
Blooms: Remember
LO1: Calculate confidence intervals for population means and proportions using the formulas in
the chapter and the appropriate Excel functions.

39) In which of the following cases is a proportion of the observations of a sample used in
estimating the confidence interval?
A) when the degrees of freedom are too large
B) when a true sampling distribution cannot be estimated
C) when the population standard deviation is known
D) when variables have only two possible outcomes
Answer: D
Diff: 1
Blooms: Remember
LO1: Use and visualize confidence intervals to draw conclusions about population parameters.
40) In the equation for calculating a confidence interval for a proportion, p± za/2 , what
does represent?
A) the mean for the sampling distribution of the proportion
B) the degree of freedom for the sampling distribution of the proportion
C) the standard error for the sampling distribution of the proportion
D) the estimator for sampling distribution of the proportion
Answer: C
Diff: 1
Blooms: Remember
LO1: Use and visualize confidence intervals to draw conclusions about population parameters.
41) A is one that provides a range for anticipating the value of a new observation from
the same population.
A) prediction interval
B) confidence interval
C) t-distribution
D) standard normal distribution
Answer: A
Diff: 1
Blooms: Remember
LO1: Compute a prediction interval and explain how it differs from a confidence interval.

42) Which of the following is true of prediction intervals?

A) It provides estimates for variables that can have only two possible outcomes.
B) It is associated with the distribution of a random variable.
C) It provides an interval estimate of a population parameter.
D) It is associated with the sampling distribution of a statistic.
Answer: B
Diff: 2
Blooms: Understand
Topic: Prediction Intervals
α/2
43) Which of the following is true of the equation [n ≥ (z )2 ] for computing the sample
size required to achieve a desired confidence interval half-width for a proportion?
A) The sample size calculated will only be an approximation.
B) The standard deviation need not be calculated first in order to compute the sample size.
C) The value for π is always set at 1.
D) The most conservative estimate for π is 0.5.
Answer: D
Diff: 1
Blooms: Understand
Topic: Confidence Interval and Sample Size
LO1: Compute sample sizes needed to ensure a confidence interval for means and proportions
with a specified margin of error.
44) The table below shows the weights of female individuals in Catherine's family. Calculate the
sample variance in the weights, and the standard deviation.
Weights of female
individuals in Catherine's
family (in lbs)
163
160
155
161
158
155
149
151
158
171
Answer: Sample variance is calculated by the formula, s2 = … (1)

Where, n = number of samples
is the sum of individual samples minus the sample mean.
N= 10,
𝑥̅= (163+160+155+161+158+155+149+151+158+171) / 10 = 158.1
Therefore substituting the values in equation (1), and by simplifying the values, we get,
=24.01+3.61+9.61+8.41+.01+9.61+82.81+50.41+.01+166.41 / 9
=354.9 / 9
=39.43.
Therefore, total variance is 39.43.
Standard deviation is the positive square root of variance.

Therefore, standard deviation = = 6.28.
Diff: 2
Blooms: Apply
LO1: Explain how the average, standard deviation, and distribution of means of samples
changes as the sample size increases.
45) The table below shows the number of goals scored by the Huntington Soccer Club in their
league for the past 12 years. Calculate the standard error of the mean of the data given that the
variance of the data is 50.45
Goals Scored by the Huntington

Soccer Club for the past 12
years
Year 1 45
Year 2 51
Year 3 33
Year 4 40
Year 5 30
Year 6 38
Year 7 49
Year 8 52
Year 9 46
Year 10 43
Year 11 40
Year 12 50

Answer: Standard error of the mean is calculated by the formula …(1), where is the standard
deviation of the data, and n is the number of samples.
Standard deviation is the positive square root of variance, and since we have the variance value
as 50.45, the standard deviation is =7.10
n = 12…(2)
σ =7.10…(3)
Substituting (2) and (3) in (1), we get 7.10 / = 2.05
Therefore the standard error of the mean = 2.05
Diff: 2
Blooms: Apply
46) Convenience sampling is an example of a probabilistic sampling method.

Answer: FALSE
Diff: 1
Blooms: Remember
LO1: State two types of subjective samplin.
47) Estimators are the measures used to estimate population parameters.

Answer: TRUE
Diff: 1
Blooms: Remember
48) Point estimates do not provide any indication of the magnitude of the potential error in the
estimate.
Answer: TRUE
Diff: 1
Blooms: Remember
LO1: Explain how an interval estimate differs from a point estimate
49) The simple random sampling method is the only statistical sampling method that does not
include sampling errors.
Answer: FALSE
Diff: 1
Blooms: Remember


LO1: Describe the difference between sampling error and nonsampling error.
50) A confidence interval is a range of values between which the value of the population
parameter is believed to be.
Answer: TRUE
Diff: 1
Blooms: Remember
51) As the number of degrees of freedom increases, the t-distribution converges to the standard
Answer: TRUE
Diff: 1
Blooms: Remember
52) For any sample of fixed size n, the true standard deviation of the sampling distribution of the
mean is the standard deviation of the population.
Answer: FALSE
Diff: 1
Blooms: Remember
53) A confidence interval is associated with the sampling distribution of a statistic.

Answer: TRUE
Diff: 1
Blooms: Remember
54) As the sample size increases, the width of the confidence interval decreases.
Answer: TRUE
Diff: 1
Blooms: Remember
Topic: Confidence Intervals and Sample Size
LO1: Explain how confidence intervals change as the level of confidence increases or decreases.

55) Explain selecting a sample using the continuous process sampling methods.
Answer: Selecting a sample from a continuous manufacturing process can be accomplished in
two main ways. First, select a time at random; then select the next n items produced after that
time. Second, select n times at random; then select the next item produced after each of these
times. The first approach generally ensures that the observations will come from a homogeneous
population; however, the second approach might include items from different populations if the
characteristics of the process should change over time.
Diff: 1
Blooms: Remember
LO1: Explain systematic, stratified, and cluster sampling, and sampling from a continuous
process.
56) Give an account of biased and unbiased estimators in sampling methods.

Answer: Statisticians develop many types of estimators, and from a theoretical as well as a
practical perspective, it is important that they "truly estimate" the population parameters they are
supposed to estimate. Suppose that we perform an experiment in which we repeatedly sampled
from a population and computed a point estimate for a population parameter. Each individual
point estimate will vary from the population parameter; however, we would hope that the long-
term average (expected value) of all possible point estimates would equal the population
parameter. If the expected value of an estimator equals the population parameter it is intended to
estimate, the estimator is said to be unbiased. If this is not true, the estimator is called biased and
will not provide correct results.
Diff: 1
Blooms: Remember
LO1: Explain the importance of unbiased estimators.
57) What is a confidence interval in sampling?

Answer: Confidence interval estimates provide a way of assessing the accuracy of a point
estimate. A confidence interval is a range of values between which the value of the population
parameter is believed to be, along with a probability that the interval correctly estimates the true
(unknown) population parameter. This probability is called the level of confidence, denoted by 1
-α, where α is a number between 0 and 1. The level of confidence is usually expressed as a
percent; common values are 90%, 95%, or 99%.
Diff: 1
Blooms: Remember
58) Compare between the t-distribution and the standard normal distribution.
Answer: The t-distribution is actually a family of probability distributions with a shape similar
to the standard normal distribution. Different t-distributions are distinguished by an additional

parameter, degrees of freedom (df). The t-distribution has a larger variance than the standard
normal, thus making confidence intervals wider than those obtained from the standard normal
distribution, in essence correcting for the uncertainty about the true standard deviation, which is
not known. As the number of degrees of freedom increases, the t-distribution converges to the
standard normal distribution. When sample sizes get to be as large as 120, the distributions are
virtually identical; even for sample sizes as low as 30 to 35, it becomes difficult to distinguish
between the two. Thus, for large sample sizes, many people use z-values to establish confidence
intervals even when the standard deviation is unknown.
Diff: 2
Blooms: Remember
59) Compare between a prediction interval and a confidence interval.

Answer: A prediction interval is one that provides a range for predicting the value of a new
observation from the same population. This is different from a confidence interval, which
provides an interval estimate of a population parameter, such as the mean or proportion. A
confidence interval is associated with the sampling distribution of a statistic, but a prediction
interval is associated with the distribution of the random variable itself.
Diff: 2
Blooms: Remember

Chapter 7: Statistical Inference
1) Which of the following propositions describes an existing theory or belief?

A) standard deviation
B) null hypothesis
C) proportion
D) alternative hypothesis
Answer: B
Diff: 1
Blooms: Remember
Topic: Hypothesis Testing
LO1: Explain the difference between the null and alternative hypotheses.
2) Which of the following is the initial step in conducting a hypothesis test?

A) collecting data and calculating a test statistic
B) selecting a level of significance
C) identifying the population parameter of interest
D) determining a decision rule
Answer: C
Diff: 1
Blooms: Remember
Topic: Hypothesis Testing
LO1: List the steps in the hypothesis-testing procedure.
3) Which of the following is a valid one-sample hypothesis test?

A) H0: population parameter ≠ constant vs. H1: population parameter = constant
B) H0: population parameter > constant vs. H1: population parameter ≤ constant
C) H0: population parameter < constant vs. H1: population parameter ≥ constant
D) H0: population parameter = constant vs. H1: population parameter ≠ constant
Answer: D
Diff: 1
Blooms: Remember
Topic: One-Sample Hypothesis Tests
LO1: State the proper forms of hypotheses for one-sample hypothesis tests.
4) A manufacturer wishes to determine if the average profit from the sale of his product exceeds
$6,710. Which of the following is the appropriate hypothesis test?
A) H0: population mean profit from sale > $6,710 vs. H1: population mean profit from sale ≤
$6,710
B) H0: population mean profit from sale ≤ $6,710 vs. H1: population mean profit from sale >
$6,710
Copyright © 2021 Pearson Education Ltd. 127

128 Chapter 7: Statistical Inference Business Analytics, 3e
C) H0: population mean profit from sale < $6,710 vs. H1: population mean profit from sale ≥
$6,710
D) H0: population mean profit from sale ≥ $6,710 vs. H1: population mean profit from sale <
$6,710
Answer: B
Diff: 2
Blooms: Apply
LO1: Correctly formulate hypotheses
5) Which of the following is true about determining the proper form of the hypotheses?
A) H0 is statistically proved true while testing
B) failure to reject H0 proves H1 wrong
C) H0 is always assumed to be true in testing
D) H1 is always assumed to be true in testing
Answer: C
Diff: 2
Blooms: Understand
LO1: Correctly formulate hypotheses
6) Which of the following is a Type I error?

A) the null hypothesis is actually true, and the hypothesis test correctly fails to reject it
B) the null hypothesis is actually false, but the test incorrectly fails to reject it
C) the null hypothesis is actually false, and the test correctly rejects it
D) the null hypothesis is actually true, but the hypothesis test incorrectly rejects it
Answer: D
Diff: 2
Blooms: Remember
LO1: Explain the difference between Type I and Type II errors.
7) Robin Inc. feared that the average company loss is running beyond $34,000. It initially
conducted a hypothesis test on a sample extracted from its database. The hypothesis was
formulated as H0: average company loss $34,000 vs. H1: average company loss > $34,000. The
test resulted in favor of Robin Inc.'s loss not exceeding $34,000. Detailed study of company
accounts later revealed that the average company loss had run up to $37,896. Which of the
following errors were made during the hypothesis test?
A) Type III error
B) Type II error
C) Type I error
D) Type IV error

Chapter 7: Statistical Inference Business Analytics, 3e 129
Answer: B
Diff: 1
Blooms: Apply
8) Type II error occurs when the test:

A) correctly fails to reject an actually true null hypothesis.
B) incorrectly fails to reject an actually false null hypothesis.
C) correctly rejects an actually false null hypothesis.
D) incorrectly rejects an actually true null hypothesis.
Answer: B
Diff: 2
Blooms: Remember
9) Level of significance is the probability of:

A) incorrectly rejecting an actually true null hypothesis.
B) correctly failing to reject an actually true null hypothesis.
C) incorrectly failing to reject an actually false null hypothesis.
D) correctly rejecting an actually false null hypothesis.
Answer: A
Diff: 1
Blooms: Remember
10) The confidence coefficient is denoted by:

A) α
B) 1 - β
C) β
D) 1 - α
Answer: D
Diff: 1
Blooms: Remember
11) What is the confidence coefficient when the level of significance is 0.03?
A) 0.9700
B) 0.0376

C) 0.7924
D) 0.7776
Answer: A
Diff: 1
Blooms: Apply
12) Which of the following denotes the power of the test?

A) α
B) 1 - β
C) β
D) 1 - α
Answer: B
Diff: 1
Blooms: Remember
13) Which of the following probabilities gives the confidence coefficient?

A) P(rejecting H0 | H0 is true)
B) P(not rejecting H0 | H0 is false)
C) P(rejecting H0 | H0 is false)
D) P(not rejecting H0 | H0 is true)
Answer: D
Diff: 1
Blooms: Remember
14) Identify the power of the test from the following probabilities.
A) P(rejecting H0 | H0 is true)
B) P(not rejecting H0 | H0 is false)
C) P(rejecting H0 | H0 is false)
D) P(not rejecting H0 | H0 is true)
Answer: C
Diff: 1
Blooms: Remember

15) Which of the following is true about the value of the power of the test?
A) low value will enable valid conclusions to be made
B) small sample sizes generate a low value of the power of the test
C) low value will help in detecting small differences in sample statistics
D) small sample sizes incur higher costs than large sample sizes
Answer: B
Diff: 1
Blooms: Remember
LO1: State how to increase the power of a test.
16) Which of the following is the test statistic for a one-sample test for mean when the
population standard deviation is unknown?
A) t =
B) z =
C) z =
D) t =
Answer: A
Diff: 1
Blooms: Remember
LO1: Choose the proper test statistic for hypothesis tests involving means and proportions.
17) The average cost for the sample of 5 sales of a product is = $230 and the sample standard
deviation is s = $17.50. The hypothesized mean is μ0 = $250. Compute the value of the test
statistic.
A) -2.56
B) -4.00
C) -1.67
D) -3.87
Answer: A
Diff: 2
Blooms: Apply

18) For a one-tailed test, the critical value:

A) divides the sampling distribution into three parts.
B) is the number of standard errors away from the sample mean.
C) helps determine if the test statistic falls in the rejection region or not.
D) fails to reject the null hypothesis if the test statistic exceeds the critical value.
Answer: C
Diff: 2
Blooms: Understand
LO1: Explain how to draw a conclusion for one- and two-tailed hypothesis tests.
19) Which of the following is true about the rejection region?

A) The rejection region is chosen to determine the probability of a Type I error.
B) With a true null hypothesis, the test statistic falls into the rejection region.
C) If the test statistic is in the nonrejection region, the null hypothesis is rejected.
D) The rejection region occurs in the tails of the sampling distribution of the test statistic.
Answer: D
Diff: 2
Blooms: Understand
20) Which of the following is true about one-tailed and two-tailed tests?
A) For standard normal and t-distributions, which have a mean of zero, lower-tail critical values
are negative and upper-tail critical values are positive.
B) For an upper one-tailed test, if the test statistic is greater than the critical value, the decision
would be to fail to reject the null hypothesis.
C) For a lower one-tailed test, if the test statistic is less than the critical value, the decision would
be to fail to reject the null hypothesis.
D) For a two-tailed test, if the test statistic is either greater than the upper critical value or less
than the lower critical value, the decision would be to fail to reject the null hypothesis.
Answer: A
Diff: 2
Blooms: Understand
In a lower one-tailed hypothesis test, chosen level of significance = 0.10, sample size = 55, and t-
test statistic = -1.76.

21) What is the observed level of significance?

A) 0.4605
B) 0.4191
C) 0.0379
D) 0.0420
Answer: D
Diff: 3
Blooms: Apply
LO1: Use p-values to draw conclusions about hypothesis tests.
22) Which of the following is the conclusion?

A) This is a high probability and the conclusion is difficult.
B) The null hypothesis is rejected.
C) There are many sampling errors.
D) The null hypothesis cannot be rejected.
Answer: B
Diff: 3
Blooms: Apply
23) Which of the following computes the test statistic for a one-sample test for proportions?
A) z =
B) z =
C) z =
D) z =
Answer: C
Diff: 1
Blooms: Remember

24) For a two-sample hypothesis which tests for differences in population parameters (1) and (2),
a two-tailed test seeks evidence that:
A) population parameter (2) is larger than parameter (1).
B) population parameter (2) is the same as parameter (1).
C) population parameter (2) is smaller than parameter (1).
D) population parameters (1) and (2) do not belong to the same data.
Answer: B
Diff: 1
Blooms: Remember
Topic: Two-Sample Hypothesis Tests
LO1: State the proper forms of hypotheses for two-sample hypothesis tests.
25) For a two-sample hypothesis test for differences in population parameters (1) and (2), which
of the following is the correct form of an upper-tailed test?
A) H0: population parameter (1) - population parameter (2) ≥ 0 vs. H1: population parameter (1)
- population parameter (2) < 0
B) H0: population parameter (1) - population parameter (2) > 0 vs. H1: population parameter (1)
- population parameter (2) ≤ 0
C) H0: population parameter (1) - population parameter (2) < 0 vs. H1: population parameter (1)
- population parameter (2) > 0
D) H0: population parameter (1) - population parameter (2) ≤ 0 vs. H1: population parameter (1)
- population parameter (2) > 0
Answer: D
Diff: 1
Blooms: Remember
26) In a two-sample test for differences in means, the hypotheses are of the form:
A)
B)
C)
D)
Answer: B
Diff: 1
Blooms: Remember

27) For a lower-tail test, the p-value in the output from an Excel tool:
A) is correct if the test-statistic is negative.
B) is the difference from 1.0 if the test-statistic is negative.
C) is correct if the test-statistic is zero.
D) is correct if the test-statistic is positive.
Answer: A
Diff: 1
Blooms: Remember
LO1: Select and use Excel Analysis ToolPak procedures for two-sample hypothesis tests.
28) Which of the following Excel tools is used for a two-sample test for equality of variances?
A) Excel F-test Two-sample for variances
B) Excel z-test: Two-sample for means
C) Excel t-test: Two-sample assuming unequal variances
D) Excel t-test: Two-sample assuming equal variances
Answer: A
Diff: 1
Blooms: Remember
29) While testing for equality of variances, which of the following formulae gives the F-test
statistic?
A) -
B)
C)
c2
1
D) c22
Answer: D
Diff: 1
Blooms: Remember
Topic: Analysis of Variance (ANOVA)
LO1: Explain the purpose of analysis of variance.
30) In statistical terminology, the variable of interest is called a .

A) critical value
B) p-value
C) factor

D) test-statistic
Answer: C
Diff: 1
Blooms: Remember
LO1: Explain the purpose of analysis of variance.
31) Which of the following is true while applying the Excel ANOVA tool?
A) The specified input range of data must be separated.
B) The sample size for each factor level must be the same.
C) The input range must be a rectangular region that contains all data.
D) Level of significance need not be specified.
Answer: C
Diff: 1
Blooms: Understand
LO1: Use the Excel ANOVA tool to conduct an analysis of variance test.
32) In order to reject the null hypothesis, the F-test statistic must be greater than the .
A) p-value
B) variance
C) df
D) F crit
Answer: D
Diff: 1
Blooms: Remember
33) Which of the following tests is used to determine if two categorical variables are
independent?
A) Chi-square test
B) t-test
C) z-test
D) ANOVA
Answer: A
Diff: 1
Blooms: Remember
Topic: Chi-Square Test for Independence
LO1: Conduct and interpret the results of a chi-square test for independence.

34) Which of the following is true about chi-square distribution?

A) It is a special distribution and is denoted by (C2).
B) It is characterized by degrees of freedom.
C) It is computed using the Excel function CHISQ.INV.TEST.
D) It has a left-tail area equal to the expected value of the sample.
Answer: B
Diff: 1
Blooms: Understand
35) Which of the following 2016 Excel functions computes the p-value for the chi-square test?
A) CHISQ.INV.RT
B) CHIDIST
C) CHI.SQ
D) CHISQ.TEST
Answer: D
Diff: 1
Blooms: Remember
The following extract from a manufacturer's database shows a sample of 10 suppliers, their
transportation charges, and the estimated and actual total costs of supplying materials. (Note:
Assume a significance level of 0.05 wherever necessary.)
Transportation Estimated Total

Supplier Charges Cost Actual Total Cost
Peter 340 4,500 4,680
John 560 4,500 4,790
Martin 480 4,500 5,110
Philip 290 4,500 4,780
Mark 370 4,500 4,810
Thomas 520 4,500 4,770
Jaison 350 4,500 5,250
David 430 4,500 4,930
Carter 510 4,500 5,010
Leonard 270 4,500 4,810
36) Conduct the appropriate type of one-sample test-statistic to determine whether the average
transportation charge is less than $430.
Answer: The hypotheses take the form: H0: population parameter ≥ constant vs. H1: population
parameter < constant

H0: population mean transportation charges ≥ $430 vs. H1: population mean transportation
charges < $430
Average transportation charges for a sample of 10 suppliers ( ) = $412
Sample standard deviation (s) = $102.18
Hypothesized mean (μ0) = $430
t = ( - μ0) / (s /✓n) = (412 - 430) / (102.18 /✓ 10) = (-18) / (32.31) = -0.56
The sample mean is 0.56 standard errors below the hypothesized value of 430. Since -0.56 > than
Critical t -2.1318, there is insufficient evidence to conclude that the average transportation
charges is below $430.
Diff: 3
Blooms: Apply
37) Conduct the appropriate type of one-sample test-statistic to determine whether the average
transportation charge is less than $430. Apply a decision rule using the observed level of
significance and draw a conclusion.
Answer: If the true mean is 430, then the p-value is the probability of obtaining a test statistic of
- 0.56 or less.
Using the Excel function TDIST(-0.56,9,TRUE), p-value = 0.2946.
Decision rule: Whenever p-value < chosen level of significance α, reject the null hypothesis and
otherwise fail to reject it.
Because p-value is not less than α = 0.05, the null hypothesis cannot be rejected. There is about a
30% chance that the test statistic would be -0.56 or smaller if the null hypothesis was true. This
is a fairly high probability, so it would be difficult to conclude that the true mean is less than
430. The fact that the sample mean is less than the hypothesized value can be attributed to
sampling error alone.
Diff: 3
Blooms: Apply
38) On studying the database, the manufacturer found out that the average difference between
the estimated and actual total costs was $394. Based on the sample data, can the manufacturer
conclude that the average difference between the estimated and actual total costs is different
from zero?
Answer: If μD denotes the population mean difference between the estimated and actual total
costs, then the null and the alternative hypotheses are of the form,
H0: μD = 0 vs. H1: μD ≠ 0.

t-Test: Paired Two Sample for Means
The above output from the Excel tool shows the critical values are ± 2.26. Since t Stat -6.97 is
much smaller than the lower critical value -2.26, the null hypothesis is rejected. It can be
concluded that the mean of the differences between the estimated and the actual total costs is
statistically significant. The p-value 0.0001 too is essentially zero verifying this conclusion.
Diff: 3
Blooms: Apply
LO1: State the proper forms of hypotheses for two-sample hypothesis tests. Select and use Excel
Analysis ToolPak procedures for two-sample hypothesis tests.
39) During a study, individuals were asked to rate a product on a scale of 1-5. From the
following data, help the researcher determine whether any significant differences exist in
opinions among individuals from different regions. (Note: Assume a significance level of 0.05
wherever necessary.)
Quintasia Paraland Bayundera

3 1 5
4 4 1
2 2 3
5 2 2
1 3 2
5 5 5
3 5 1
1 4
4
2

Answer: The null hypothesis for ANOVA is that the population means of all groups are equal;
the alternative hypothesis is that at least one mean differs from the rest:
H0: μ1 = μ2 = μ3 vs. H1: at least the mean from one region is different from others
Anova: Single Factor
From the above results of the ANOVA test, F = 0.16 and F crit = 3.443. Clearly, F < F crit,
which means that the null hypothesis cannot be rejected. It can be concluded that we do not have
enough information to state that there are no significant differences in the opinions among the
individuals from different regions. The p-value 0.8492 being greater than the chosen level of
significance verifies the conclusion.
Diff: 3
Blooms: Apply
40) Using the following data, test for the independence of the variables. (Note: Assume
a significance level of 0.05 wherever necessary.)
Respondent Gender Breakfast Preference

1 Female Fruits
2 Male Cereal
3 Male Milk
4 Female Fruits
5 Female Milk
6 Male Cereal
7 Male Milk
8 Male Milk
9 Female Fruits

10 Male Fruits
11 Male Cereal
12 Female Cereal
13 Female Milk
14 Male Fruits
15 Female Fruits
Answer: The chi-square test for independence tests the following hypotheses:
H0: the two categorical variables are independent
H1: the two categorical variables are dependent
Cross-tabulation table:
Expected Frequency Cereal Fruits Milk Grand Total

Female 1.87 2.80 2.33 7.00
Male 2.13 3.20 2.67 8.00
Grand Total 4.00 6.00 5.00 15.00
The chi-square statistic is computed as X2 = , where fo is the observed frequency, and

fe is the expected frequency.
Chi Square Statistic Cereal Fruits Milk Grand Total

Female 0.40 0.51 0.05 0.96
Male 0.36 0.45 0.04 0.85
Grand Total 0.76 0.96 0.09 1.81
From the above table of calculations, the value of the chi-square statistic is 1.81.
From the cross-tabulation table, the number of rows r = 2 and number of columns c = 3.
Degrees of freedom = (r-1)(c-1) = (2-1)(3-1) = 2. Chi-square critical = 5.991.
p-value = 0.4049
The chi-square test returned a p-value greater than the chosen level of significance. Therefore,
the null hypothesis cannot be rejected. We cannot state that the categorical variables are
dependent.
Diff: 3
Blooms: Apply

41) In conducting a hypothesis test, what is usually to be proven statistically is identified as the
null hypothesis.
Answer: FALSE
Diff: 1
Blooms: Remember
LO1: Explain the difference between the null and alternative hypotheses.
42) If the alternative hypothesis includes the symbol <, the rejection region is in the upper tail.
Answer: FALSE
Diff: 1
Blooms: Remember
43) For a two-sample test for means with the population variance being known, the Excel
procedure used is the Excel z-test.
Answer: TRUE
Diff: 1
Blooms: Remember
44) In a two-sample test for means with the population variance being known, the z-test uses a
test statistic that is based on the standard normal distribution.
Answer: TRUE
Diff: 1
Blooms: Remember
45) The first step in a chi-square test is to compute the observed frequency between each cell of
the cross-tabulation if the two variables are independent.
Answer: FALSE
Diff: 1
Blooms: Remember
46) What are the four different outcomes of hypothesis testing?

Answer: Hypothesis testing can result in one of four different outcomes:

• The null hypothesis is actually true, and the hypothesis test correctly fails to reject it.
• The null hypothesis is actually false, and the hypothesis test correctly rejects it.
• The null hypothesis is actually true, but the hypothesis test incorrectly rejects it (called Type I
error).
• The null hypothesis is actually false, but the hypothesis test incorrectly fails to reject it (called
Type II error).
Diff: 2
Blooms: Remember
LO1: List the four possible outcome results from a hypothesis test.
47) How do test statistics for two-sample tests vary depending on whether the population
standard deviations are known, and if not, whether they are assumed to be equal?
Answer: Selection of the proper test statistic for a two-sample test for means depends on
whether the population standard deviations are known, and if not, whether they are assumed to
be equal.
• Population variance is known. In Excel 2010, choose z-Test: Two-Sample for Means from the
Data Analysis menu. This test uses a test statistic that is based on the standard normal
distribution.
• Population variance is unknown and assumed unequal. From the Data Analysis menu, choose
t-test: Two-Sample Assuming Unequal Variances. The test statistic for this case has a t-
distribution.
• Population variance unknown but assumed equal. In Excel, choose t-test: Two-Sample
Assuming Equal Variances. The test statistic also has a t-distribution, but it is different from the
unequal variance case.
Diff: 2
Blooms: Understand
48) For a two-sample test, explain the procedure used when it is difficult to justify the
assumption that the variances of each population are equal.
Answer: Only rarely are the population variances known; also, it is often difficult to justify the
assumption that the variances of each population are equal. Therefore, in most practical
situations, the t-test: Two-Sample Assuming Unequal Variances is used. This procedure also
works well with small sample sizes if the populations are approximately normal. It is
recommended that the size of each sample be approximately the same and total 20 or more. If the
populations are highly skewed, then larger sample sizes are recommended.
Diff: 2
Blooms: Understand

49) Explain the assumptions underlying ANOVA along with their violations.
Answer: ANOVA requires assumptions that the m groups or factor levels being studied
represent populations whose outcome measures:
• are randomly and independently obtained,
• are normally distributed, and
• have equal variances.
If these assumptions are violated, then the level of significance and the power of the test can be
affected. If sample sizes are equal, violation of the third assumption does not have serious effects
on the statistical conclusions; however, with unequal sample sizes, it can. A nonparametric test
may be used when the assumptions underlying ANOVA are violated.
Diff: 2
Blooms: Understand
LO1: List the assumptions of ANOVA.
50) Why is testing for independence important for businesses?

Answer: A common problem in business is to determine whether two categorical variables are
independent. With sample data, sampling error can make it difficult to properly assess
independence of categorical variables. The joint probabilities would never be expected to be
exactly the same as the product of the marginal probabilities because of sampling error even if
the two variables are statistically independent. Testing for independence is important in
marketing applications.
Diff: 2
Blooms: Understand

Chapter 8: Trendlines and Regression Analysis
1) A regression model that involves a single independent variable is called .

A) single regression
B) unit regression
C) simple regression
D) individual regression
Answer: C
Diff: 1
Blooms: Remember
Topic: Simple Linear Regression
LO1: Explain the purpose of regression analysis and provide examples in business.
2) Regression models of data focus on predicting the future.

A) missing
B) time-series
C) panel
D) cross-sectional
Answer: B
Diff: 1
Blooms: Remember
The following table exhibits the age of antique furniture and the corresponding prices. Use the
table to answer the following question(s). (Hint: Use scatter diagram and the Excel Trendline
tool where necessary).
Number Value
of years ($)
78 930
91 1010
83 970
159 1950
134 1610
210 2880
88 980
178 2010
124 1370
72 900

145
146 Chapter 8: Trendlines and Regression Analysis Business Analytics, 3e
3) What is the relationship between the age of the furniture and their values?
A) Nonlinear
B) Linear
C) Curvilinear
D) No relationship
Answer: B
Diff: 2
Blooms: Apply
LO1: Use a scatter chart to identify the type of relationship between two variables.
4) Which of the following is true of linear functions used in predictive analytical models?
A) It is used when the rate of change in a variable decreases or increases quickly and then levels
out.
B) It is used when there is a steady decrease or increase over a range of a variable.
C) It is used when there is increase at a specific rate.
D) It is used when there is a rise or fall at a constantly increasing rate.
Answer: B
Diff: 2
Blooms: Remember
Topic: Data-Driven Modeling
LO1: List the common types of mathematical functions used in predictive modeling.
5) are mathematical functions used in predictive analytical models which define

phenomena that increase at a specific rate, and is represented by the formula y = axb
A) Exponential functions
B) Power functions
C) Polynomial functions
D) Logarithmic functions
Answer: B
Diff: 1
Blooms: Remember
Topic: Modeling Relationships and Trends in Data
6) Which of the following mathematical functions, used in predictive analytical models, is

represented by the formula y = ax3 + bx2 + cx + d?
A) exponential functions
B) power functions
C) logarithmic functions
D) polynomial functions
Answer: D

Chapter 8: Trendlines and Regression Analysis Business Analytics, 3e 147
Diff: 1
Blooms: Remember
7) In functions, represented by y = abx, y rises or falls at constantly increasing rates.

A) logarithmic
B) power
C) exponential
D) polynomial
Answer: C
Diff: 1
Blooms: Remember
8) In Excel's Trendline tool, the value of the gives the measure of fit of the line to the
data.
A) linear function
B) R-squared
C) moving average
D) set intercept
Answer: B
Diff: 1
Blooms: Remember
LO1: Apply the Excel Trendline tool to fit models to data.
9) Which of the following is true of the R-squared (R2) value in Excel's Trendline function?
A) A value of 1.0 for R2 indicates maximum deviation of the data from the line.
B) If the value of R2 is above 1.0, the line will be at a perfect fit for the data.
C) The value of R2 will always be between -1 and 1.
D) As the value of R2 gets higher, the line will be a better fit for the data.
Answer: D
Diff: 1
Blooms: Remember
LO1: Apply the Excel Trendline tool to fit models to data.
10) Which of the following equations correctly expresses the relationship between the two
variables?
A) Value = (-181.16) + 13.493 × Number of years

B) Number of years = Value / 12.537

C) Value = (459.34 / Number of years) × 4.536
D) Number of years = (17.538 × Value) / (-157.49)
Answer: A
Diff: 3
Blooms: Apply
LO1: Use the Excel Trendline tool to find the best-fitting simple linear regression model.
11) What is the expected value for a 90 year-old piece of furniture?

A) $1002.45
B) $997.98
C) $934.56
D) $1033.21
Answer: D
Diff: 3
Blooms: Apply
LO1: Use the Excel Trendline tool to find the best-fitting simple linear regression model.
12) In a linear relationship, which of the following accounts for the many possible values of the
dependent variable that vary around the mean?
A) the coefficient of the dependent variable X
B) the value of the intercept ß0
C) the random error term ε
D) the standard error SYX
Answer: C
Diff: 1
Blooms: Remember
LO1: Explain how least-squares regression finds the best-fitting regression model.
13) Which of the following is true about the observed errors associated with estimating the value
of the dependent variable using the regression line?
A) They are the horizontal distances between slopes and y-intercepts.
B) The errors are also referred to as critical values.
C) They are always maximized by the regression lines.
D) The errors can be negative or positive.
Answer: D
Diff: 2
Blooms: Understand


14) For an independent variable Y, the error associated with the ith observation is:
A) ei = Yi - Ŷi
B) Yi = (ei)2 - Ŷi
C) (Ŷi)2 ei = Yi
D) ei = (Yi + Ŷi)2
Answer: A
Diff: 1
Blooms: Remember
Following is an extract from the database of a construction company. The table shows the height
of walls in feet and the cost of raising them. The estimated simple linear regression equation is
given as Ŷ = b0 + b1X. (Hint: Use Excel functions).
Height (ft) Cost ($)

4 670
3 430
7 810
9 1100
6 790
8 880
5 760
11 1200
15) What is the value of the coefficient b0?

A) -2.25321
B) 0.010697
C) 254.8371
D) 86.81704
Answer: C
Diff: 3
Blooms: Apply
LO1: Use Excel functions to find least-squares regression coefficients.

16) What is the value of the coefficient b1?

A) 86.81704
B) 254.8371
C) 0.010697
D) -2.14625
Answer: A
Diff: 3
Blooms: Apply
17) What is the estimated cost of raising a 10-inch wall?

A) 1505.786
B) 1103.578
C) 968.6109
D) 1123.008
Answer: D
Diff: 3
Blooms: Apply
18) Which of the following statements is true when using the Excel Regression tool?
A) The range for the independent variable values must be specified in the box for the Input Y
Range.
B) Checking the option Constant is Zero forces the intercept to zero.
C) The Regression tool can be found in the Tools tab under Insert group.
D) Adding an intercept term reduces the analysis' fit to the data.
Answer: B
D’ff: 2
Blooms: Understand
LO1: Use the Excel Regression tool for both single and multiple linear regressions.
19) Which of the following generates a scatter chart in Excel with the values predicted by the
regression model included?
A) Trendline
B) Residual Plots
C) R Square
D) Line Fit Plots
Answer: D

Diff: 1
Blooms: Remember
20) Which of the following is true about Excel outputs Multiple R?

A) It is often referred to as the coefficient of determination.
B) A value of 0 indicates positive correlation.
C) A negative slope of the regression line denotes a positive Multiple R.
D) It is another name for the sample correlation coefficient, r.
Answer: D
Diff: 1
Blooms: Remember
LO1: Interpret the regression statistics of the Excel Regression tool.
21) The R2 value:

A) is the variability of the observed Y-values from the predicted values.
B) indicates that as the independent variable increases, the intercept term does too.
C) gives the proportion of variation in the dependent variable that is explained by the
independent variable.
D) transforms the cumulative probability scale (vertical axis) so that the graph of the cumulative
normal distribution is a straight line.
Answer: C
Diff: 1
Blooms: Remember
22) For a simple linear regression model, significance of regression is:

A) a measure of how well the regression line fits the data.
B) a hypothesis test of whether the true regression coefficient ß1 is zero.
C) a statistic that modifies the value of R2 by incorporating the sample size and the number of
explanatory variables in the model.
D) the variability of the observed Y-values from the predicted values.
Answer: B
Diff: 1
Blooms: Remember
LO1: Interpret significance of regression from the Excel Regression tool output.

23) Which of the following Excel functions is applied to test for significance of regression?
A) COVAR
B) ANOVA
C) SINH
D) TREND
Answer: B
Diff: 1
Blooms: Remember
24) While testing hypotheses for regression coefficients, the t-test for the slope is expressed as:
A) t =
B) t =
C) t =
D) t =
Answer: A
Diff: 1
Blooms: Remember
LO1: Draw conclusions for tests of hypotheses about regression coefficients.
25) provide information about the unknown values of the true regression coefficients,
accounting for sampling error.
A) Standard errors
B) Confidence intervals
C) Adjusted R Squares
D) P-values
Answer: B
Diff: 1
Blooms: Remember
LO1: Interpret confidence intervals for regression coefficients
26) Standard residuals:

A) help detect outliers that may bias the results of a regression analysis.
B) cause differences in the regression equation by changing the slope and intercept.
C) point out the ranges for the population intercept and slope at a 95% confidence level.

D) provide information for testing hypothesis associated with the intercept and slope.
Answer: A
Diff: 2
Blooms: Remember
Topic: Residual Analysis and Regression Assumptions
LO1: Calculate standard residuals.
27) A(n) is an extreme value that is different from the rest of the data.
A) critical value
B) standard error
C) expected value
D) outlier
Answer: D
Diff: 1
Blooms: Remember
28) While checking for linearity by examining the residual plot, the residuals must:
A) exhibit a linear trend.
B) form a parabolic shape.
C) be randomly scattered.
D) be below the x-axis.
Answer: C
Diff: 1
Blooms: Remember
29) Which of the following is true when testing for normality of errors?
A) Normality is verified by inspecting for a bell-shaped distribution.
B) It is easier to evaluate normality with small sample sizes.
C) A scatter diagram of the whole data is always used to verify normality.
D) Errors are normally distributed when the scatter diagram shows a straight-line
distribution. Answer: A
Diff: 1
Blooms: Remember
LO1: List the assumptions of regression analysis and describe methods to verify them.
30) means that the variation about the regression line is constant for all values of the
independent variable.

A) Autocorrelation
B) Normality of errors
C) Homoscedasticity
D) Linearity
Answer: C
Diff: 1
Blooms: Remember
31) Which of the following helps in evaluation of autocorrelation?

A) Breusch-Pagan test
B) Durbin-Watson statistic
C) Hosmer-Lemeshow test
D) Cochran-Mantel-Haenszel statistics
Answer: B
Diff: 1
Blooms: Remember
32) In multiple regression, R Square is referred to as the:

A) multiple correlation coefficient.
B) coefficient of autocorrelation.
C) coefficient of multiple determination.
D) multiple significance coefficient.
Answer: C
Diff: 1
Blooms: Remember
Topic: Multiple Linear Regression
LO1: Explain the differences in the Excel Regression tool output for simple and multiple linear
regression models.
33) Which of the following is true about multiple linear regression?

A) It is a linear regression model with more than one dependent variable.
B) The regression coefficients are called fractional regression coefficients.
C) It uses least squares to estimate the intercept and slope coefficients.
D) The ANOVA tests for the significance of each variable separately.
Answer: C
Diff: 1
Blooms: Understand
Topic: Multiple Linear Regression

LO1: Explain the differences in the Excel Regression tool output for simple and multiple linear
regression models.
34) When using the t-statistic in multiple regression to determine if a variable should be
removed:
A) R2 will increase if the variable is removed.
B) if |t| > 1, the standard error will decrease.
C) a large number of independent variables is convenient.
D) if |t| < 1, the standard error will increase.
Answer: A
Diff: 2
Blooms: Understand
Topic: Building Good Regression Models
LO1: Apply a systematic approach to build good regression models.
35) When two or more independent variables in the same regression model can predict each
other better than the dependent variable, the condition is referred to as .
A) autocorrelation
B) heteroscedasticity
C) multicollinearity
D) homoscedasticity
Answer: C
Diff: 1
Blooms: Remember
LO1: Explain the importance of understanding multicollinearity in regression models.
36) Which of the following is true about multicollinearity?

A) The effect of a dependent variable on another becomes difficult to isolate.
B) Regression coefficients become clearer and are easier to interpret.
C) P-values reduce significantly leading to rejection of null hypothesis.
D) It is best measured using the statistic variance inflation factor (VIF).
Answer: D
Diff: 1
Blooms: Remember
LO1: Explain the importance of understanding multicollinearity in regression models.
37) Categorical variables that have been coded are called .

A) limited dependent variables
B) dummy variables
C) instrumental variables

D) observable
variables Answer: B
Diff: 1
Blooms: Remember
Topic: Regression with Categorical Independent Variables
LO1: Build regression models for categorical data using dummy variables.
38) Interaction is:

A) the principle of having a model with maximum explanatory variables.
B) the process of coding categorical variables.
C) a measure to determine the correlation between dependent variables.
D) the dependence between two independent variables.
Answer: D
Diff: 1
Blooms: Remember
LO1: Test for interactions in regression models with categorical variables.
39) How many additional dummy variables are required if a categorical variable has 4 levels?
A) 2
B) 3
C) 1
D) 4
Answer: B
Diff: 1
Blooms: Understand
LO1: Build regression models for categorical data using dummy variables.
40) When a scatter chart of data shows a nonlinear relationship, the nonlinear model can be
expressed as:
A) Y = β0 + β1X + β2X2 + ε
B) Y = β0 + β1X + (β2X)2 + ε
C)
Y = β0 + β1X + β2X
D)
Y = β0 + β1X2 + β2X2 + ε
Answer: A
Diff: 1
Blooms: Remember
Topic: Regression Models with Nonlinear Terms
LO1: Identify when curvilinear regression models are more appropriate than linear models.
41) In a quadratic regression model, the represents the curvilinear effect.

A) slope of the linear term

B) error term
C) slope of the quadratic term
D) R Square
Answer: C
Diff: 1
Blooms: Remember
Following is an extract from a firm's database detailing the number of hours spent on the job by
employees and their corresponding pay. (Note: Assume a level of significance of 0.05 wherever
necessary.)
Hours spent on the job Salary ($)

4 340
12 850
7 570
5 470
11 820
8 610
9 630
13 900
10 800
6 480
42) Construct a scatter diagram and use the Excel Trendline tool to find the best-fitting simple
linear regression model.
Answer:

Diff: 2
Blooms: Apply
LO1: Use the Excel Trendline tool to fit models to data.
43) Is the hours spent on the job a statistically significant variable in explaining the variation in
pay of employees? (Hint: Use Regression tool).
Answer: Hypothesis test for significance of regression:
H0 : β1 = 0
H1 : β1 ≠ 0
where, β1 is the slope of the intercept.
Significance F, that is, the p-value associated with the hypothesis test is essentially zero (2.525 ×
10-7). Therefore, assuming a level of significance of 0.05, the null hypothesis must be rejected
and conclude that the slope–the coefficient for number of hours spent on the job–is not zero. This
means that work hours is a statistically significant variable in explaining the variation in
employee pay.
Diff: 3
Blooms: Apply
44) Draw conclusions for test of hypothesis for regression coefficients.

Answer: Hypothesis test for regression coefficients:
H0 : β1 = 0
H1 : β1 ≠ 0
where, β1 is the slope of the intercept.
The t-test for the slope:
t= = 61.27272727 / 3.868357187 = 15.83946991
Because the P-value for both coefficients is essentially zero, it can be concluded that neither
coefficient is statistically equal to zero.
Diff: 3
Blooms: Apply
LO1: Draw conclusions for tests of hypotheses about regression coefficients.

45) Interpret the confidence intervals.

Answer: A 95% confidence interval for the intercept is [46.15, 206.22]. Similarly, a 95%
confidence interval for the slope is [52.35, 70.19]. Although the regression model is Ŷ = 126.18
+ 61.273X, the confidence intervals suggest a bit of uncertainty about predictions using the
model. Although, it can be estimated that an employee who spent 10.5 hours on the job will
receive a pay of 126.18 + (61.273 × 10.5) = $769.5465, if the true parameters are at the extremes
of the confidence intervals, the estimate might be as low as 46.15 + (52.35 × 10.5) = $595.825 or
as high as 206.22 + (70.19 × 10.5) = $943.215.
Diff: 3
Blooms: Apply
LO1: Interpret confidence intervals for regression coefficients
46) Interpret residual output.

Answer: From the data, the first observation has a salary of $340 and the regression model
predicts $371.27. Thus the residual is 340 - 371.27 = - $31.27. By dividing this residual by its
standard deviation, the standardized residual for the first observation is - 0.944. This means that
the first observation is about 0.94 standard deviations below the regression line. There are no
standardized residuals outside of ± 3 standard deviations. It can be concluded that there are no
outliers.
Diff: 3
Blooms: Apply
47) In predictive analysis models, a second-order polynomial has only one hill or valley.
Answer: TRUE
Diff: 1
Blooms: Remember
48) Excel's Trendline feature cannot be used in modeling trends which include time variables.
Answer: FALSE
Diff: 1
Blooms: Understand
LO1: Use the Excel Trendline tool to fit models to data.

49) The best-fitting line maximizes the residuals.

Answer: FALSE
Diff: 1
Blooms: Remember
50) Creating a scatter chart with an added trendline is visually superior to the scatter chart
generated by line fit plots.
Answer: TRUE
Diff: 1
Blooms: Remember
LO1: Use a scatter chart to identify the type of relationship between two variables.
51) The standard error may be assumed to be large if the data are clustered close to the
regression line.
Answer: FALSE
Diff: 1
Blooms: Remember
52) An increase in adjusted R2 indicates that the regression model has improved.
Answer: TRUE
Diff: 1
Blooms: Remember
53) A good regression model has the fewest number of explanatory variables providing an
adequate interpretation of the dependent variable.
Answer: TRUE
Diff: 1
Blooms: Remember
54) Why is regression analysis necessary in business? What categories of regression models are
used?

Answer: Regression analysis is a tool for building statistical models that characterize
relationships among a dependent variable and one or more independent variables, all of which
are numerical. Two broad categories of regression models are used often in business settings: (1)
regression models of cross-sectional data and (2) regression models of time-series data, in which
the independent variables are time, or some function of time, and the focus is on predicting the
future. Time-series regression is an important tool in forecasting.
Diff: 2
Blooms: Remember
55) When are logarithmic functions used in predictive analysis?

Answer: Logarithmic functions are used when the rate of change in a variable increases or
decreases quickly and then levels out, such as with diminishing returns to scale. Logarithmic
functions are often used in marketing models where constant percentage increases in advertising,
for instance, result in constant, absolute increases in sales.
Diff: 1
Blooms: Remember
56) While conducting regression analysis, how is constructing a normal probability plot useful?
Answer: While conducting regressions analysis using the Excel Regression tool, a normal
probability plot for the dependent variable may be chosen to be constructed. It transforms the
cumulative probability scale (vertical axis) so that the graph of the cumulative normal
distribution is a straight line. The closer the points are to a straight line, the better the fit to a
Diff: 2
Blooms: Understand
57) Briefly explain the assumptions on which the statistical hypothesis tests associated with
regression analysis are predicated.
Answer: The statistical hypothesis tests associated with regression analysis are predicated on
some key assumptions about the data.
(1) Linearity: This is usually checked by examining a scatter diagram of the data or examining
the residual plot. If the model is appropriate, then the residuals should appear to be randomly
scattered about zero, with no apparent pattern.
(2) Normality of errors: Regression analysis assumes that the errors for each individual value of
X are normally distributed, with a mean of zero.
(3) Homoscedasticity: This means that the variation about the regression line is constant for all
values of the independent variable.

(4) Independence of errors: Residuals should be independent for each value of the independent
variable.
Diff: 1
Blooms: Remember
58) List the systematic approach to build good multiple regression models.
Answer:
(1) Construct a model with all available independent variables. Check for significance of the
independent variables by examining the p-values.
(2) Identify the independent variable having the largest p-value that exceeds the chosen level of
significance.
(3) Remove the variable identified in step 2 from the model and evaluate adjusted R2. (Don't
remove all variables with p-values that exceed α at the same time, but remove only one at a
time.)
(4) Continue until all variables left in the model are significant.
Diff: 1
Blooms: Remember
59) Explain the concept of curvilinear regression model.

Answer: Linear regression models are not appropriate for every situation. A scatter chart of the
data might show a nonlinear relationship, or the residuals for a linear fit might result in a
nonlinear pattern. In such cases, a nonlinear model is proposed to explain the relationship. For
instance, a second-order polynomial model would be:
Y = β0 + β1X + β2X2 + ε
Sometimes this is called a curvilinear regression model. In this model, β1 represents the linear
effect of X on Y, and β2 represents the curvilinear effect. However, although this model appears
to be quite different from ordinary linear regression models, it is still linear in the parameters. In
other words, all terms are a product of a beta coefficient and some function of the data, which are
simply numerical values. In such cases least squares can still be applied to estimate the
regression coefficients.
Diff: 2
Blooms: Understand

Chapter 9: Forecasting Techniques
1) The Delphi method used for forecasting:
A) obtains forecasts through a comparative analysis with a previous situation.

B) uses measures that are believed to influence the behavior of a variable that the researcher
wishes to forecast.
C) uses a single measure that weights multiple indicators and provides a measure of overall
expectation.
D) uses a panel of experts, whose identities are typically kept confidential from one another, to
respond to a sequence of questionnaires.
Answer: D
Diff: 1
Blooms: Remember
Topic: Qualitative and Judgmental Forecasting
LO1: Explain how judgmental approaches are used for forecasting.
2) Before launching a new line of toys, Toys Inc. used the method of historical analogy to obtain
a forecast. In this scenario, Toys Inc.:
A) noted the behavior of its current customers while they use their products.
B) used a panel of experts, whose identities were kept confidential from one another, to respond
to a sequence of questionnaires.
C) noted the consumer response to similar previous products to marketing campaigns and used
the responses as a basis to predict how the new marketing campaign might fare.
D) used a brainstorming session among a group of experts to draw new ideas.
Answer: C
Diff: 1
Blooms: Apply
3) In forecasting, what is an index?

A) It is a single measure that weights multiple indicators and provides a measure of overall
expectation.
B) It is a stream of historical data, such as weekly sales.
C) It is a time series that does not have trend, seasonal, or cyclical effects but is relatively
constant and only exhibits random behavior.
D) It is a measure that provides a complete forecast.
Answer: A
Diff: 1
Blooms: Apply

163
164 Chapter 9: Forecasting Techniques Business Analytics, 3e

4) What is a stream of historical data known as?
A) a time series
B) an index
C) a complex number
D) an orthopole
Answer: A
Diff: 1
Blooms: Remember
Topic: Statistical Forecasting Models
LO1: List different types of statistical forecasting models.
5) Time-series models may exhibit seasonal effects or cyclical effects. A seasonal effect differs
from a cyclical effect in that a seasonal effect:
A) has no trend, is relatively constant, and only exhibits random behavior.
B) describes ups and downs over a time frame such as several years.
C) is one that repeats at fixed intervals of time, typically a year, month, week, or day.
D) is based on analysis of historical time-series data and are predicated on the assumption that
the future is an extrapolation of the past.
Answer: C
Diff: 2
Blooms: Understand
LO1: List different types of statistical forecasting models.
6) The data for the number of hand-held gaming devices sold for the past 5 weeks are 15 units,
20 units, 25 units, 30 units, and 17 units respectively. The time series appears to be relatively
stable, without trend, seasonal, or cyclical effects; thus, a moving average model would be
appropriate. Setting k = 3 the three-period moving average forecast for week 6 is .
A) 20 units
B) 24 units
C) 30 units
D) 17 units
Answer: B
Diff: 2
Blooms: Apply
Topic: Forecasting Models for Stationary Time Series
LO1: Apply moving average and exponential smoothing models to stationary time series.

Chapter 9: Forecasting Techniques Business Analytics, 3e 165
7) If the actual value of a time series at time t and the forecast value for time t is denoted by At
and Ft respectively, then the formula for the mean absolute deviation over a range of forecasted
values is .
A) MAD =
B) MAD =
C) MAD =
D) MAD =
Answer: A
Diff: 1
Blooms: Remember
LO1: State three error metrics used for measuring forecast accuracy and explain the differences
among them.
8) Identify the formula used to calculate the root mean square error over a range of forecasted
values, if the actual value of the time series at time t and the forecast value for time t are denoted
by At and Ft respectively.
A) RMSE =
B) RMSE =
C) RMSE =
D) RMSE =

Answer: C
Diff: 1
Blooms: Remember
among them.
9) The actual value of the time series at time t and the forecast value for time t is denoted by At
and Ft respectively. What is the formula used for calculating the mean absolute percentage error
over a range of forecasted values?
∑n
t=1|
At—Ft
|
A) MAPE 2
= n
∑n |At—Ft|
B) MAPE =J
t=1 2
n
∑n |Æt–Ft|
C) MAPE = t=1
n
∑n
t=1 At—Ft
| At |
D) MAPE × 100
= n
Answer: D
Diff: 1
Blooms: Remember
among them.
The table provided below gives the sales details of the number of android smart phones at an
electronic retail store for the past 6 weeks. The time series appears to be relatively stable, without
trend, seasonal, or cyclical effects. The simple moving average value of k is set at 2.
Week Units sold

1 88
2 44
3 54
4 65
5 72
6 85

10) For the given data, the simple moving average mean absolute deviation is .
A) 0.21
B) 20.12
C) 14.25
D) 207.13
Answer: C
Diff: 3
Blooms: Apply
among them.
11) For the given data, what is the value of the simple moving average mean square error?
A) 0.21
B) 20.12
C) 14.25
D) 207.13
Answer: D
Diff: 3
Blooms: Apply
among them.
12) Using the data, determine the value of the simple moving average root mean square error.
A) 0.21
B) 14.39
C) 20.12
D) 207.13
Answer: B
Diff: 3
Blooms: Apply
among them.
13) For the given data, calculate the value of the simple moving average mean absolute
percentage error.
A) 20.90
B) 23.45

C) 14.39
D) 25.56
Answer: A
Diff: 3
Blooms: Apply
among them.
14) If the smoothing constant is assumed to be 0.7, and setting F1 and F2 = A1, the exponential
smoothing sales forecast for week 7 is approximately .
A) 50 phones
B) 80 phones
C) 60 phones
D) 70 phones
Answer: B
Diff: 3
Blooms: Apply
among them.
Answer the following question(s) using exponential smoothing after having optimized α at 0.1
increments.
15) Calculate the value of the mean absolute percentage error for the given data.
A) 20.90
B) 16.60
C) 21.72
D) 29.97
Answer: D
Diff: 3
Blooms: Apply
among them.
16) Which of the following is the value of the root mean square error for the given data?
A) 11.56
B) 21.77

C) 13.87
D) 20.13
Answer: B
Diff: 3
Blooms: Apply
among them.
17) What is the forecasted value for the 3rd week?

A) 53 phones
B) 64 phones
C) 71 phones
D) 49 phones
Answer: A
Diff: 3
Blooms: Apply
among them.
18) What is the difference between the forecasted and the actual value for the 3 rd week?
A) 1 phones
B) 6 phones
C) 4 phones
D) 3 phones
Answer: A
Diff: 3
Blooms: Apply
among them.
19) What is the forecasted value for the 7th week?

A) 53 phones
B) 82 phones
C) 71 phones
D) 49 phones
Answer: B
Diff: 3
Blooms: Apply


among them.
20) In the linear trend equation, Ft+k = at + btk, at is known as the .

A) level
B) trend
C) slope
D) forecast
Answer: A
Diff: 1
Blooms: Remember
Topic: Forecasting Models for Time Series with a Linear Trend
LO1: Apply double exponential smoothing models to time series with a linear trend.
21) In the linear trend equation Ft+k = at + btk, identify the term that signifies the trend.
A) bt
B) k
C) at
D) Ft + k
Answer: A
Diff: 1
Blooms: Remember
22) What is the formula used to calculate the value of at in the linear trend equation Ft+k = at +
btk while using double exponential smoothing?
A) at = β(bt - bt-1) + (1 -β)bt-1
B) at = αFt-1 + (1 - α)(at +1 + bt+1)
C) at = αFt + (1 - α)(at -1 + bt-1)
D) at = β(bt + bt-1) + (1 + γ)bt-1
Answer: C
Diff: 1
Blooms: Remember

23) What is the formula used to calculate the value of bt in the linear trend equation Ft+k = at +
btk while using double exponential smoothing?
A) bt = β(bt - bt-1) + (1 -β)bt-1
B) bt = αFt-1 + (1 - α)(at +1 + bt+1)
C) bt = αFt + (1 - α)(at -1 + bt-1)
D) bt = β(at - at-1) + (1 -β)bt-1
Answer: D
Diff: 1
Blooms: Remember
The worldwide sales of cars from 1981-1990 are shown in the table below. Given: α = 0.2 and
β = 0.15 (Hint: Use XLMiner)
Units sold in
Year thousands
1981 888
1982 900
1983 1000
1984 1200
1985 1100
1986 1300
1987 1250
1988 1150
1989 1100
1990 1200
24) Calculate the value of the mean absolute percentage error using double exponential
smoothing for the given data.
A) 1.80
B) 8.10
C) 91.27
D) 11976.17
Answer: B
Diff: 3
Blooms: Apply

25) Identify the value of the mean square error using double exponential smoothing for the given
set of data.
A) 8.10
B) 1.80
C) 91.27
D) 11976.17
Answer: D
Diff: 3
Blooms: Apply
26) Using double exponential smoothing, calculate the value of the mean absolute deviation for
the given data.
A) 8.10
B) 1.80
C) 91.27
D) 11976.17
Answer: C
Diff: 3
Blooms: Apply
27) Using double exponential smoothing, find the value of the root mean square error for the
given data.
A) 8.10
B) 91.27
C) 11976.17
D) 109.44
Answer: D
Diff: 3
Blooms: Apply
28) Which of the following equations is the trend line equation for the given data? (Note: the
fitted model assumes that the years are numbered 1 through 10, not the actual dates.)
A) 60.123x + 481.56
B) 48.16x + 481.86

C) 32.17x + 931.87
D) 57.15x + 503.81
Answer: C
Diff: 3
Blooms: Apply
LO1: Apply regression-based forecasting to time series with a linear trend.
29) For the given data, what is the sales forecast for the year 1992 (in thousands)?
A) 1256.87
B) 1317.91
C) 1285.74
D) 1350.08
Answer: B
Diff: 3
Blooms: Apply
LO1: Apply regression-based forecasting to time series with a linear trend.
The worldwide sales of cars from 1981-1990 are shown in the table below. Given: α = 0.2, γ =
0.05, and season length = 1. (Hint: Use XLMiner).
Units sold in
Year thousands
1 750
2 823
3 1034
4 1945
5 1556
6 1300
7 1346
8 1150
9 967
10 1200
30) Calculate the value of the mean absolute percentage error using the Holt-Winters no-trend
model for the given data.
A) 8.10
B) 18.39
C) 21.70

D) 10.97
Answer: C
Diff: 3
Blooms: Apply
LO1: Use Holt-Winters and regression models to forecast time series with seasonality.
31) Determine the value of the mean absolute deviation using the Holt-Winters no-trend model
for the given data.
A) 367.35
B) 18.39
C) 21.70
D) 252.55
Answer: D
Diff: 3
Blooms: Apply
32) Which of the following is the value of the root mean square error for the given data?
A) 252.55
B) 367.35
C) 21.70
D) 109.76
Answer: B
Diff: 3
Blooms: Apply
33) Which of the following is the forecast value for the 6th year?
A) 1256.06
B) 1328.04
C) 1321.31
D) 1327.24
Answer: B
Diff: 3
Blooms: Apply

34) If the given time series has no trend and no seasonality, the most appropriate forecasting
model to determine the forecast of the time series is the model.
A) single moving average
B) Holt-Winters no-trend smoothing
C) double exponential smoothing
D) Holt-Winters additive
Answer: A
Diff: 1
Blooms: Remember
Topic: Forecasting Time Series with Seasonality
LO1: Identify the appropriate choice of forecasting model based on the characteristics of a time
series.
35) If the given time series has a trend and no seasonality, the most appropriate forecasting
model to determine the forecast of the time series is the model.
A) single exponential smoothing
B) Holt-Winters no trend smoothing
D) Holt-Winters additive
Answer: C
Diff: 1
Blooms: Remember
series.
36) If the given time series has a trend and seasonality, the most appropriate forecasting model to
determine the forecast of the time series is the model.
A) multiple regression
B) Holt-Winters no trend smoothing
D) Holt-Winters multiplicative
Answer: D
Diff: 1
Blooms: Remember
series.

The table below provides the sales data for JD Inc. for the year 1998. Given: α = 0.2, β = 0.15,
and γ = 0.05 (Hint: Use an additive Holt-Winters model.)
Umbrella Sales of JD Inc.

Year Month Units
1 Jan 3980
1 Feb 4000
1 Mar 4740
1 April 4720
1 May 4920
1 Jun 5140
1 July 4640
1 Aug 4520
1 Sep 4480
1 Oct 4690
1 Nov 4210
1 Dec 4418
2 Jan 4380
2 Feb 4400
2 Mar 5140
2 April 5120
2 May 5320
2 Jun 5540
2 July 5040
2 Aug 4920
2 Sep 4880
2 Oct 5090
2 Nov 4610
2 Dec 4818
37) Using an appropriate Holt-Winters trend model, calculate the value of the mean absolute
percentage error for the given data.
A) 8.10
B) 330.01
C) 384.83
D) 7.21
Answer: D
Diff: 3
Blooms: Apply
LO1: Apply Holt-Winters forecasting models to time series with both trend and seasonality.

38) What is the value of the mean absolute deviation for the given data?
A) 8.10
B) 340.73
C) 14.82
D) 7.62
Answer: B
Diff: 3
Blooms: Apply
39) Calculate the value of the mean square error using an appropriate Holt-Winters trend model
for the given data.
A) 8.10
B) 346.26
C) 140942.78
D) 7.62
Answer: C
Diff: 3
Blooms: Apply
40) What will be the predicted sales for umbrellas for the month of February of year 2?
A) 4530.19
B) 4648.21
C) 4883.76
D) 4818.07
Answer: B
Diff: 3
Blooms: Apply

Use the data shown below to answer the following question(s).
The table below is the data set of the Shiller Real Home Price Index for the years 1946-1956.
Real Home Price

Year Index
1946 106.5058955
1947 109.3296707
1948 101.2225795
1949 100.0466076
1950 105.8948393
1951 103.8986687
1952 103.9743275
1953 114.7133093
1954 114.199126
1955 115.4621261
1956 115.3166155
41) Setting k = 3, determine the simple moving average forecast for the year 1950.
Answer: Year 1950 forecast = (100.0466076 + 101.2225795 + 109.3296707)/3 = 103.5329526 ≈
104.
Diff: 2
Blooms: Apply
42) Setting k = 5, calculate the simple moving average forecast for the year 1951.
Answer: Year 1951 forecast = (106.5058955 + 109.3296707 + 101.2225795 + 100.0466076 +
105.8948393)/5 = 104.5999185 ≈ 105.
Diff: 2
Blooms: Apply

43) Setting k = 3, determine the value of mean absolute deviation.

Answer:
Year Real Home Price Index Ft At — Ft |At — Ft| (At — Ft)2

1946 106.5058955
1947 109.3296707
1948 101.2225795
1949 100.0466076 105.6860486 -5.63944 5.639441 31.80329
1950 105.8948393 103.5329526 2.361887 2.361887 5.578509
1951 103.8986687 102.3880088 1.51066 1.51066 2.282093
1952 103.9743275 103.2800385 0.694289 0.694289 0.482037
1953 114.7133093 104.5892785 10.12403 10.12403 102.496
1954 114.199126 107.5287685 6.670358 6.670358 44.49367
1955 115.4621261 110.9622543 4.499872 4.499872 20.24885
1956 115.3166155 114.7915205 0.525095 0.525095 0.275725
SUM 32.02563 207.6602
MAD = = = 4.00
The mean absolute deviation is 4.00.
Diff: 2
Blooms: Apply
among them.
44) Setting k = 3, determine the value of root mean square of errors.
Answer:
Year Real Home Price IndexFt At — Ft |At — Ft| (At — Ft)2
1946 106.5058955
1947 109.3296707
1948 101.2225795
1949 100.0466076 105.6860486 -5.63944 5.639441 31.80329
1950 105.8948393 103.5329526 2.361887 2.361887 5.578509
1951 103.8986687 102.3880088 1.51066 1.51066 2.282093
1952 103.9743275 103.2800385 0.694289 0.694289 0.482037
1953 114.7133093 104.5892785 10.12403 10.12403 102.496
1954 114.199126 107.5287685 6.670358 6.670358 44.49367
1955 115.4621261 110.9622543 4.499872 4.499872 20.24885
1956 115.3166155 114.7915205 0.525095 0.525095 0.275725
SUM 32.02563 207.66

MSE = = = 25.95752173
RMSE = √𝑀𝑆𝐸= 5.09
The value of root mean square errors is 5.09.
Diff: 3
Blooms: Apply
among them.
45) Setting k = 3, determine the value of mean absolute percentage of error.
Answer:
Year Real Home Price IndexFt At — Ft |At — Ft|

1946 106.5058955
1947 109.3296707
1948 101.2225795
1949 100.0466076 105.6860486 -5.63944 5.639441 0.056368
1950 105.8948393 103.5329526 2.361887 2.361887 0.022304
1951 103.8986687 102.3880088 1.51066 1.51066 0.01454
1952 103.9743275 103.2800385 0.694289 0.694289 0.006678
1953 114.7133093 104.5892785 10.12403 10.12403 0.088255
1954 114.199126 107.5287685 6.670358 6.670358 0.05841
1955 115.4621261 110.9622543 4.499872 4.499872 0.038973
1956 115.3166155 114.7915205 0.525095 0.525095 0.004554
SUM 32.02563 0.290081
MAPE = × 100 = × 100 = 3.63

The value of mean absolute percentage of error is 3.63.
Diff: 3
Blooms: Apply
among them.

46) Indicators are measures that are believed to influence the behavior of a variable an individual
wishes to forecast.
Answer: TRUE
Diff: 1
Blooms: Remember
47) The indexes in the forecasting indicators provide a complete forecast.

Answer: FALSE
Diff: 1
Blooms: Remember
48) A cyclical effect is one that repeats at fixed intervals of time, typically a year, month, week,
or day.
Answer: FALSE
Diff: 1
Blooms: Remember
49) The Holt-Winters additive model applies to time series whose amplitude increases or
decreases over time.
Answer: FALSE
Diff: 1
Blooms: Remember
50) If a time series has seasonality but no trend, the most appropriate model used for forecasting
is the Holt-Winters multiplicative model.
Answer: FALSE
Diff: 1
Blooms: Remember
51) Write a short note on indicators and indexes used in forecasting.

Answer: Indicators are measures that are believed to influence the behavior of a variable an
individual wishes to forecast. By monitoring changes in indicators, the individual expects to gain
insight about the future behavior of the variable to help forecast the future.

Indicators are often combined quantitatively into an index, a single measure that weights
multiple indicators, thus providing a measure of overall expectation. For example, financial
analysts use the Dow Jones Industrial Average as an index of general stock market performance.
Indexes do not provide a complete forecast, but rather a better picture of direction of change, and
thus play an important role in judgmental forecasting.
Diff: 1
Blooms: Remember
52) What is simple exponential smoothing?

Answer: A versatile, yet highly effective approach for short-range forecasting is simple
exponential smoothing. The basic simple exponential smoothing model is:
Ft+1 = (1 - α)Ft + aAt
Ft+1 = Ft + α(At - Ft)
where Ft+1 is the forecast for time period t + 1, Ft is the forecast for period t, At is the observed
value in period t, and α is a constant between 0 and 1 called the smoothing constant.
Diff: 1
Blooms: Remember
53) Explain the significance of using double moving average and double exponential smoothing
models.
Answer: For time series with a linear trend but no significant seasonal components, double
moving average and double exponential smoothing models are more appropriate than using
simple moving average or exponential smoothing models. Both methods are based on the linear
trend equation:
Ft+k = at + btk
That is, the forecast for k periods into the future from period t is a function of a base value at,
also known as the level, and a trend, or slope, bt. Double moving average and double exponential
smoothing differ in how the data are used to arrive at appropriate values for at and bt.
In double exponential smoothing, the estimates of at and bt are obtained from the following
equations:
at = αFt + (1 - α)(at -1 + bt-1)
bt = β(αt - at -1) + (1 - β)bt-1)
Diff: 2
Blooms: Remember

54) Explain the different types of Holt-Winters models used in forecasting.

Answer: Holt-Winters models are similar to exponential smoothing models in that smoothing
constants are used to smooth out variations in the level and seasonal patterns over time. For time
series with seasonality but no trend, XLMiner supports a Holt-Winters method but does not have
the ability to optimize the parameters.
Many time series exhibit both trend and seasonality. Such might be the case for growing sales of
a seasonal product. These models combine elements of both the trend and seasonal models. Two
types of Holt-Winters smoothing models are often used.
The Holt-Winters additive model is based on the equation:
Ft+1 = at + bt + St –s+1
and the Holt-Winters multiplicative model is:
Ft+1 = (at + bt)St –s+1
The additive model applies to time series with relatively stable seasonality, while the
multiplicative model applies to time series whose amplitude increases or decreases over time.
Therefore, a chart of the time series should be viewed first to identify the appropriate type of
model to use. Three parameters, α, β , and γ, are used to smooth the level, trend, and seasonal
factors in the time series. XLMiner supports both models.
Diff: 2
Blooms: Remember
LO1: Use Holt-Winters and regression models to forecast time series with seasonality. Apply
Holt-Winters forecasting models to time series with both trend and seasonality.
55) Explain econometric models used in forecasting with examples.

Answer: Student examples may vary.
Explanatory/causal models, often called econometric models, seek to identify factors that explain
statistically the patterns observed in the variable being forecast, usually with regression analysis.
For instance, a manufacturer of hospital equipment might include such variables as hospital
capital spending and changes in the proportion of people over the age of 65 in building models to
forecast future sales.
Diff: 1
Blooms: Remember
Topic: Regression Forecasting with Causal Variables
LO1: Explain how regression techniques can be used to forecast with explanatory or causal
variables.

Chapter 10: Introduction to Data Mining
1) Which of the following is included in the data mining approach of Cluster Analysis?
A) analyzing data to predict how to classify a new data element
B) identifying groups in which the elements of the groups are in some way similar
C) creating rules for target marketing based on association of variables
D) developing analytic models to describe the relationship between metrics
Answer: B
Diff: 1
Blooms: Remember
Topic: The Scope of Data Mining
LO1: Define data mining and some common approaches used in data mining.
2) Spam filtering for e-mails can be seen as an example of which of the following types of
approaches of data mining?
A) reduction
B) association
C) cause-and-effect modeling
D) classification
Answer: D
Diff: 1
Blooms: Remember
3) U-botit.com is an electronic commerce company that sells music online. It keeps a tab of what
genre of music their registered customers buy. If u-botit.com were to use the data mining
approach of association, which of the following actions would it take?
A) send recommendations to customers based on their buying habits
B) conduct surveys to customers to gauge customer satisfaction
C) classify the customers based on the genre of music they listen to
D) provide discounts to certain genre buyers where sales are less
Answer: A
Diff: 1
Blooms: Apply
LO1: Describe association rule mining and its use in market basket analysis.
4) The data mining approach called involves the developing of analytic models to
describe the relationship between metrics that drive business performance like profitability,
customer satisfaction, or employee satisfaction.
A) association
184
Chapter 10: Introduction to Data Mining Business Analytics, 3e 185
B) reduction
C) cause-and-effect modeling
D) classification
Answer: C
Diff: 1
Blooms: Remember
5) Sendstars is a package delivering company that recently made a study on its customer
retention and service renewal metrics. They found that most customers defected from using
Sendstars' services due to customer dissatisfaction stemming from delivery personnel being rude
or ill-mannered. To curb this issue, Sendstars gave special training to its employees in customer
service. Which of the following data mining approaches did Sendstars employ when they
decided to train their employees in customer care based on the study?
A) association
B) cause-and-effect modeling
C) classification
D) reduction
Answer: B
Diff: 1
Blooms: Apply
6) is a collection of techniques that seek to group or segment a collection of objects or

observations into subsets, such that those within each subset are more closely related to one
another than objects assigned to different subsets.
A) Association
B) Discriminant analysis
C) Cluster analysis
D) Logistic regression
Answer: C
Diff: 1
Blooms: Apply
Topic: Cluster Analysis
LO1: Explain how cluster analysis is used to explore and reduce data.
7) Which of the following is true of cluster analysis?

A) It is a cause-and-modeling type of analytic model.

186 Chapter 10: Introduction to Data Mining Business Analytics, 3e
B) It does not provide a definitive answer from analyzing the data.

C) It is primarily a prescriptive analytical method.
D) It uses clustered data that are not affected by the specific method used.
Answer: B
Diff: 2
Blooms: Understand
8) Which of the following is true of hierarchical clustering?

A) All clusters must have the same number of data.
B) No single cluster can have all objects
C) The data are not partitioned into a particular cluster in a single step.
D) All clusters must have more than one object in it.
Answer: C
Diff: 1
Blooms: Remember
9) Which of the following is the first stage of joining clusters in agglomerative hierarchical
clustering?
A) by separating clusters into finer groups
B) by joining two clusters farthest away from each other
C) by joining two clusters that are not at a Euclidean distance
D) by joining two clusters that are closest to each other
Answer: D
Diff: 1
Blooms: Remember
10) Divisive clustering method is different from agglomerative clustering methods in that
divisive clustering methods .
A) can only have a pair of subjects in each cluster
B) separate objects into a particular cluster in one step
C) separate n objects successively into finer groupings
D) can only have a single subject in each cluster
Answer: C
Diff: 1
Blooms: Remember

11) If the Euclidean distance were to be represented in a right triangle, which of the following
would be considered the distance between two objects of a cluster?
A) the hypotenuse
B) the small leg
C) the long leg
D) the average of the sum of both the legs
Answer: A
Diff: 1
Blooms: Remember
12) Which of the following formulas calculates the Euclidean distance between X and Y?
A)
B)
C)
D)
Answer: C
Diff: 1
Blooms: Remember
13) In the method, the distance between groups is defined as the distance between the
closest pair of objects, where only pairs consisting of one object from each group are considered.
A) Ward's linkage clustering
B) single linkage clustering
C) divisive clustering
D) average group linkage clustering
Answer: B
Diff: 1
Blooms: Remember
14) Which of the following is a definition of distance between two clusters in a complete linkage
clustering?
A) the average of distances between all pairs of objects, where each pair is made up of one object
from each group
B) the distance between the most distant pair of objects, one from each group
C) the sum of squares of the distance between clusters
D) the distance between the value of the shortest link between the clusters

Answer: B
Diff: 2
Blooms: Remember
15) Which of the following uses the sum of squares between the objects in the cluster when
measuring their distances?
A) divisive clustering
B) average group linkage clustering
C) Ward's hierarchical clustering
D) single linkage clustering
Answer: C
Diff: 1
Blooms: Remember
16) In classification, which of the following would be considered as a categorical variable of

interest for a credit approval decision for a requester?
A) age of the requester
B) income of the requester
C) revolving balance of the requester
D) reject or accept credit approval
Answer: D
Diff: 2
Blooms: Remember
Topic: Classification
LO1: Explain the purpose of classification methods and how to measure classification
performance, and the use of training and validation data.
17) Which of the following features of classification, used in Excel, for a particular database will
necessarily be coded to a certain value?
A) categorical variables
B) non-numerical variables
C) predictor variables
D) numerical
variables Answer: B
Diff: 1
Blooms: Remember

18) The effectiveness of a classification rule can be judged making a probability of

misclassification errors and summarizing the results in a .
A) classification matrix
B) classification hierarchy
C) dendogram
D) classification algorithm
Answer: A
Diff: 1
Blooms: Remember
19) The algorithm is a classification scheme that attempts to find records in a database
that are similar to one we wish to classify.
A) linear regression
B) logistic regression
C) k-Nearest Neighbors
D) discriminant analysis
Answer: C
Diff: 1
Blooms: Understand
20) In a k-Nearest Neighbors algorithm, similarity of records is based on the .

A) closeness of a record to numerical predictors in the other records
B) sum of the squares of the distance between the numerical predictors
C) set of linear functions of predictors called discriminant functions
D) nearness of a record to its own observations
Answer: A
Diff: 1
Blooms: Understand
21) Which of the following is true of the value of k in the k-Nearest Neighbors algorithm?
A) The value of k is always taken as a constant and is equal to 1.
B) If the value of k is large, it drastically increases variability.
C) If the value k is very large, it introduces biases into the classification decisions.

D) If the value k is large, the classification of a record is very sensitive to the classification of the
single record to which it is closest.
Answer: C
Diff: 2
Blooms: Understand
22) is a data-mining technique used for classifying a set of observations into

predefined classes.
A) Logistic regression
B) k-Nearest Neighbors algorithm
C) Discriminant analysis
D) Linear regression
Answer: C
Diff: 1
Blooms: Remember
23) Which of the following is true of logistic regression as a classifying method?

A) Its dependent variable is always categorical.
B) Its independent variable is always continuous or numerical.
C) It predicts the probability of output variables based on dependent variables.
D) It cannot be used when the depIIdent variable is
binary. Answer: A
Diff: 1
Blooms: Remember
24) When using logistic regression, where p being the probability that the dependent variable Y =
1, X1, X2 ..., Xk are the independent variables, and β0, β1, β2 ..., βk are unknown regression
coefficients, is called the odds of belonging to category 1(Y = 1).
A) p(β0 + β1X1 + β2X2 + ...+ βkXk)
B)
C)

D)
Answer: C
Diff: 2
Blooms: Remember
25) Which of the following is true of Association?

A) It develops analytic models to describe the relationship between metrics that drive business
performance.
B) It identifies attributes that occur frequently together in a given data set.
C) It seeks to classify a categorical outcome into one of two or more categories.
D) It is a data reduction technique that reduces large information into smaller heterogeneous
groups.
Answer: B
Diff: 1
Blooms: Remember
Topic: Association
26) Which of the following types of data-mining methods provides probabilistic if-then
statements?
A) association rule
B) logistic regression
C) reduction
D) cause-and effect modeling
Answer: A
Diff: 1
Blooms: Remember
Topic: Association
27) Which of the following typically describes the support for the association rule?
A) the number of transactions that include all items that are in the antecedent parts of the rule
B) the number of transactions that include all items in the antecedent and consequent parts of the
rule
C) the number of transactions that include half from the antecedent and half from the consequent
D) the number of transactions that include all items that are in the consequent parts of the rule
Answer: B
Diff: 1

Blooms: Understand
Topic: Association
28) is the ratio of the number of transactions that include all items in the consequent as
well as the antecedent to the number of transactions that include all items in the antecedent.
A) Lift
B) Logit
C) Support for the association rule
D) Confidence of the association rule
Answer: D
Diff: 1
Blooms: Remember
Topic: Association
29) The strength of the association rule, known as lift, is calculated as the ratio of the .
A) sum of the antecedents and the consequents to the antecedents
B) antecedents to the consequents
C) support to the confidence level
D) confidence to expected confidence
Answer: D
Diff: 1
Blooms: Remember
Topic: Association
30) Which of the following is true of the lift value in association rule?
A) Its strength is directly proportional to the strength of the association rule.
B) It cannot have a value that is more than 1 to be considered a good minimum.
C) It provides information on the increase of the antecedent given the consequent.
D) It does not require the expected confidence to be calculated.
Answer: A
Diff: 1
Blooms: Understand
Topic: Association
31) In the cause-and-effect modeling, internal metrics, such as employee satisfaction,

productivity, and turnover are considered to be measures.
A) logit
B) life

C) leading
D) lagging
Answer: C
Diff: 1
Blooms: Remember
Topic: Cause-and-Effect Modeling
LO1: Use correlation analysis for cause-and-effect modeling
32) Which of the following would be considered a lagging measure in a restaurant using the
cause-and-modeling method of data mining?
A) a manager who is having trouble meeting the daily demands
B) a waiter's behavior toward a customer
C) an accurately billed meal
D) a satisfied customer
Answer: D
Diff: 1
Blooms: Understand
33) A musical instruments retailer has 10,000 point-of-sale transactions out of which 1500 sales
included both items of electric guitars and guitar cases, and out of which 750 had sales of new
strings. If the electric guitars are considered A, the guitar cases are considered B, and the strings
are considered C, then the associate rule for these sales become "If A and B are purchased, then
C is also purchased." Calculate the confidence level, expected confidence level, and lift for this
rule, given that total transactions for C is 3000.
Answer:
Total sales = 10,000
Sales of A and B = 1,500
Sales of A, B, and C = 750
The association rule "If A and B are purchased, then C is also purchased" has a support of 750
out of 1500 sales.
confidence = P (consequent | antecedent) = P(antecedent + consequent) / P(antecedent)
Therefore the confidence level = Total support / Total sales = 750 / 1,500 = 50%.
The total number of transactions for C is given as 3000.
Expected confidence is the number of transactions that include the consequent divided by the
total number of transactions.
Therefore the expected confidence level = 3,000 / 10,000 = 30%.
The lift is calculated as confidence / expected confidence = 50% / 30% = 1.67.
Diff: 3
Blooms: Apply
Topic: Association

34) In cluster analysis, the objects within clusters should exhibit a high amount of dissimilarity.
Answer: FALSE
Diff: 1
Blooms: Remember
LO2: Identify different business uses for statistics and the major statistical tools businesses use
35) In the average linkage clustering, the distance between two clusters is defined as the average
of distances between all pairs of objects, where each pair is made up of one object from each
group.
Answer: TRUE
Diff: 1
Blooms: Remember
36) Logistic regression cannot be employed when the dependent variable is binary.
Answer: FALSE
Diff: 1
Blooms: Remember
37) In association analysis, the antecedent and consequent are sets of items that do not have any
items in common.
Answer: TRUE
Diff: 1
Blooms: Remember
Topic: Association
38) Expected confidence assumes independence between the consequent and the antecedent.
Answer: TRUE
Diff: 1
Blooms: Remember
Topic: Association

39) The market share of a business would be considered a lagging measure in the cause-and-
effect modeling of data mining.
Answer: TRUE
Diff: 1
Blooms: Remember
40) Lagging and leading measures in cause-and-effect modeling are uncorrelated.

Answer: FALSE
Diff: 1
Blooms: Understand
41) Briefly explain classification as a data-mining tool with an example.

Answer: Classification is the process of analyzing data to predict how to classify a new data
element. An example of classification is spam filtering in an e-mail client. By examining textual
characteristics of a message, the message is classified as junk or not. Classification methods can
help predict whether a credit-card transaction may be fraudulent, whether a loan applicant is high
risk, or whether a consumer will respond to an advertisement.
Diff: 1
Blooms: Remember
42) How are objects clustered in agglomerative hierarchical clustering?

Answer: An agglomerative hierarchical clustering procedure produces a series of partitions of
the data, Pn, Pn-1, ..., P1 . Pn consists of n single-object clusters, and consists of a single group
containing all n observations. At each particular stage, the method joins together the two clusters
that are closest together. At the first stage, this consists of simply joining together the two objects
that are closest together. The most commonly used measure of distance between objects is
Euclidean distance. Some clustering methods use the squared Euclidean distance (that is, without
the square root) because it speeds up the calculations.
Diff: 2
Blooms: Remember

43) Exemplify the k-Nearest Neighbor algorithm of classification.

Answer: Suppose we have a record X that we want to classify. If we use the k-Nearest Neighbor
(k-NN) method, the nearest neighbor to that record in the training data set is the one that has the
smallest distance from it. The 1-NN rule then classifies record X in the same category as its
nearest neighbor. We can extend this idea to a k-NN rule by finding the k-Nearest Neighbors in
the training data set to each record we want to classify and then assigning the classification as the
classification of majority of the k-Nearest Neighbors. The choice of k is somewhat arbitrary. If k
is too small, the classification of a record is very sensitive to the classification of the single
record to which it is closest. A larger k reduces this variability, but making k too large introduces
bias into the classification decisions. For example, if k is the count of the entire training dataset,
all records will be classified the same way.
Diff: 2
Blooms: Remember
44) How is the strength of an association measured?

Answer: To measure the strength of association, an association rule has two numbers that
express the degree of uncertainty about the rule. The first number is called the support for the
association rule. The support is simply the number of transactions that include all items in the
antecedent and consequent parts of the rule. The second number is the confidence of the
association rule. Confidence is the ratio of the number of transactions that include all items in the
consequent as well as the antecedent to the number of transactions that include all items in the
antecedent. Another measure of the strength of an association rule is lift, which is defined as the
ratio of confidence to expected confidence. Expected confidence is the number of transactions
that include the consequent divided by the total number of transactions. The higher the lift ratio,
the stronger the association rule; a value greater than 1.0 is usually a good minimum.
Diff: 2
Blooms: Remember
Topic: Association
45) Explain how data-mining using lagging and leading measures of the cause-and-effect model
can help managers make business decisions.
Answer: Managers are always interested in results, such as profit, customer satisfaction and
retention, production yield, and so on. These results are divided as either lagging measures or
leading measures. Customer satisfaction results in regard to sales or service transaction would be
lagging measures; employee satisfaction, sales representative behavior, billing accuracy, and so
on, would be examples of leading measures that might influence customer satisfaction. If
employees are not satisfied, their behavior toward customers could be negatively affected, and
customer satisfaction could be low. If this can be explained using business analytics, managers
can take steps to improve employee satisfaction, leading to improved customer satisfaction.
Therefore, it is important to understand what controllable factors significantly influence key

business performance measures that managers cannot directly control. Correlation analysis can
help to identify these influences and lead to the development of cause-and-effect models that can
help managers make better decisions today that will influence results tomorrow.
Diff: 2
Blooms: Remember

Chapter 11: Spreadsheet Modeling and Analysis
1) Troista Mobile Accessories sells mobile apps on their Web site. If a customer spends on
average, $12 per visit and visits the Web site 20 times each year, what is the average
nondiscounted gross profit during a customer's lifetime? Given that Troista makes a margin of 60
percent on the average bill, with 25 percent of customers not returning each year.
A) $30
B) $75
C) $360
D) $576
Answer: D
Diff: 2
Blooms: Apply
Topic: Model-Building Strategies
LO1: Explain how to use logic, business principles, influence diagrams, and historical data to
develop analytic decision models.
2) Which of the following is necessary to calculate the variable cost of production for the
company to develop a profit model?
A) unit sale price
B) quantity of item produced
C) quantity of item sold
D) fixed cost of production
Answer: B
Diff: 1
Blooms: Understand
3) In which of the following ways does demand influence profit?

A) It predicts how many units will be sold.
B) It directly influences the fixed cost of production.
C) It helps in reducing the variable cost of production.
D) It reduces the unit cost of production.
Answer: A
Diff: 1
Blooms: Understand

198
Chapter 11: Spreadsheet Modeling and Analysis Business Analytics, 3e 199
Using the spreadsheet below to answer the following question(s).
The spreadsheet below shows the net income model for a company that sells shoes.
A B
1 Net Income Model
2
3 Data
4
5 Sales $10,000,000
6 Cost of Goods Sold $ 6,400,000
7 Administrative Expenses $ 500,000
8 Selling Expenses $ 900,000
9 Depreciation Expenses $ 750,000
10 Interest Expenses $ 70,000
11 Taxes $ 620,000
12
13 Model
14
15 Gross Profit $ 3,600,000
16 Operating Expenses $ 2,150,000
17 Net Operating Income $ 1,450,000
18 Earnings Before Taxes $ 1,380,000
19
20 Net Income
4) Which of the following formulas would be used to calculate the net income value using only
the data value?
A) =SUM(B5:B10)-B11
B) =SUM(B5:B11)
C) =B5-SUM(B6:B11)
D) =B5-SUM(B6:B10)+B11
Answer: C
Diff: 2
Blooms: Apply
Topic: Implementing Models on Spreadsheets
LO1: Apply principles of spreadsheet engineering to designing and implementing spreadsheet
models.
5) Which of the following would be used to calculate the gross profit?

A) =SUM(B7:B11)-B6
B) =B5-B6
C) =B5-(B6-B11)
D) =B5-B6+(B11-B10)

200 Chapter 11: Spreadsheet Modeling and Analysis Business Analytics, 3e
Answer: B
Diff: 2
Blooms: Apply
models.
6) Which of the following formulas would be used to calculate the operating expenses?
A) =SUM(B7:B10)
B) =SUM(B7:B9)
C) =SUM(B7:B9)-B6
D) =SUM(B7:10)-B11
Answer: B
Diff: 2
Blooms: Apply
models.
7) Which of the following formulas would be used to calculate the net operating income?
A) =B15-B5
B) =B15-B16
C) =SUM(B6:B10)-B11
D) =B15-B16+B6
Answer: B
Diff: 2
Blooms: Apply
models.
8) Which of the following formulas would be used to calculate earnings before taxes?
A) =B15-B16+B6
B) =B15-B5
C) =B15-B16
D) =B17-B10
Answer: D
Diff: 2
Blooms: Apply


models.
9) Which of the following formulas would be used to calculate the net income value using only
the information in the Model, and not in the Data section?
A) =B5-B17
B) =B6-B15
C) =B15-B16-B17+B18
D) =B18-B11
Answer: D
Diff: 2
Blooms: Apply
models.
Below is the profit model spreadsheet for the Lazarus Shoe Company producing their latest
model of shoes for the month of January.
Profit Model for Lazarus

Shoe Company for
January (All cost in $)
Unit Price 47
Unit Cost 22
Fixed Cost for Production350,000
Demand 40,000
Model
Unit Price 47
Quantity Sold 38,000
Revenue
Unit Cost 22
Quantity Produced 38,000
Variable Cost
Fixed Cost 350,000
Profit

10) Calculate the revenue for units sold.

A) $836,000
B) $1,136,000
C) $600,000
D) $1,786,000
Answer: D
Diff: 2
Blooms: Apply
11) Calculate the variable cost of production.

A) $1,786,000
B) $836,000
C) $600,000
D) $1,436,000
Answer: B
Diff: 2
Blooms: Apply
12) Calculate the total profit.

A) $600,000
B) $1,436,000
C) $836,000
D) $1,786,000
Answer: A
Diff: 2
Blooms: Apply
Dresden Pharmaceuticals has decided to go ahead and start clinical trials on a potential new drug.
The total R&D costs are estimated to reach around $875,000,000 with clinical trials mounting to
$145,000,000. The current market size is estimated to be around 3,000,000 and is expected to
grow at 4 percent every year. The market share Dresden hopes to capture in the first year is 7
percent, and is projected to grow by 25 percent each year for the next 4 years. A monthly

prescription is anticipated to generate revenue of $420 while incurring variable costs of $150. A
discount rate of 8 percent is assumed.
Dresden Pharmaceuticals
Data
Market Size 3,000,000

Unit (monthly Rx) revenue ($) 420
Unit (monthly Rx) cost ($) 150
Discount Rate ( per cent) 8
Project Costs
R&D ($) 875,000,000
Clinical Trials ($) 145,000,000
13) Calculate the projected sales for the first year.

A) 273,000
B) 210,000
C) 378,000,000
D) 268,230
Answer: B
Diff: 2
Blooms: Apply
14) Calculate the market size for the second

year. A) 3,000,000
B) 273,000
C) 3,244,800
D) 3,120,000
Answer: D
Diff: 2
Blooms: Apply
15) Calculate the market share percentage in the third year.

A) 25 percent
B) 4 percent

C) 11 percent
D) 7 percent
Answer: C
Diff: 2
Blooms: Apply
16) Calculate the annual revenue for the fourth year.

A) $ 2,325,304,800
B) $830,466,000
C) $1,494,838,800
D) $1,149,876,000
Answer: A
Diff: 2
Blooms: Apply
17) Calculate the annual cost incurred for the second

year. A) $1,224,120,000
B) $884,520,000
C) $491,400,000
D) $638,820,000
Answer: C
Diff: 2
Blooms: Apply
18) Calculate the projected profit for the third year.

A) $31,315,200
B) $2,373,996,000
C) $1,149,876,000
D) $1,494,838,800
Answer: C
Diff: 2
Blooms: Apply

19) Calculate cumulative net profit at the fourth year.

A) $1,073,538,462
B) $3,189,634,800
C) $1,312,041,240
D) $1,494,838,800
Answer: B
Diff: 2
Blooms: Apply
20) Calculate the net present value for Dresden's new drug.
A) $1,312,041,240
B) ($339,600,000)
C) $3,702,463,939
D) ($932,028,690)
Answer: C
Diff: 2
Blooms: Apply
21) Which of the following years shows the first profit for Dresden's new drug?
A) first year
B) second year
C) third year
D) fourth year
Answer: B
Diff: 2
Blooms: Apply
22) Which of the following is the root cause for the newsvendor problem?
A) uncertainty in supply
B) uncertainty in demand
C) high cost per unit sale

D) high total production cost

Answer: B
Diff: 1
Blooms: Understand
Topic: Descriptive Spreadsheet Models
23) Which of the following conditions is the optimal solution to the newsvendor problem, where
Q is the quantity to be purchased, and D is demand?
A) Q > D
B) Q = D
C) D > Q
D) Q / D = 0
Answer: B
Diff: 1
Blooms: Understand
Sujito Electronix makes headphones for $22 and sells them for $32. Sujito has sold at least 50
headphones on average per week in the past, though the actual demand is unknown. Sujito has
also often run short of supply in the past. After three months of release, the headphones are sold
at 40 percent discount. The spreadsheet below shows Sujito's sales and demand for the
headphones. We take demand at 51, and quantity produced at 55.
Newsvendor model for

Sujito's headphones
Data
Selling Price $32

Cost $22
Discount Price $19.2
Model
Demand 51
Produced Quantity 55
Quantity Sold
Surplus Quantity

24) Which of the following is the value for quantity sold?

A) 51
B) 50
C) 4
D) 55
Answer: A
Diff: 1
Blooms: Apply
25) Calculate the net profit for the headphones.

A) $586.8
B) $498.8
C) $1653.8
D) $466.8
Answer: B
Diff: 2
Blooms: Apply
Below is a room overbooking model spreadsheet for the Metza, a hotel chain. The hotel has 425
rooms priced at $180 per day each, and is usually fully booked. Reservations can be cancelled
any time before 5:00 p.m. with no penalty. The hotel estimates an average overbooking cost of
$150. Customer demand is set at 400 with an average cancellation of 20.
A B
Hotel Overbooking Model
for the Metza group of
1 hotels
2
3 Data
4
5 Rooms Available 425
6 Price per room $180
7 Overbooking Cost $150
8
9 Model
10

11 Reservation Limit 425

12 Customer Demand 400
13 Reservation Made
14 Cancellations 20
15 Customer Arrivals
16 Overbooked Customers
26) Calculate the customer arrivals at the Metza.

A) 425
B) 405
C) 400
D) 380
Answer: D
Diff: 2
Blooms: Apply
27) Which of the following is the excel formula used to estimate overbooked customers?
A) =MIN(0,B5-B15)
B) =MAX(0,B15-B5)
C) =MAX(B11,B12)
D) =MIN(B11-B12,B11-B14)
Answer: B
Diff: 2
Blooms: Apply
28) Calculate the net revenue.

A) $72,900
B) $76,500
C) $64,650
D) $68,400
Answer: D
Diff: 2
Blooms: Apply

Sheila joined Simsin Tradings at the age of 36 with a starting salary of $75,000. She expects a
salary increase of 5 percent every year. Her retirement plan requires her to pay 9 percent of her
salary, while the company matches it at 32 percent. She expects an annual return of 7 percent on
her retirement portfolio. Using a predictive model for Sheila's first five years, calculate the
following, assuming that the salary increases at the same rate every year, and the return of
interest does not change.
Retirement Plan Model for Sheila
Data
Retirement Contribution ( percent of salary) 9 percent

Employer Match 32 percent
Annual Salary Increase 5 percent
Annual Return on Investment 7 percent
29) What will be Sheila's salary in her second year of work at Simsin?
A) $81,750
B) $82,688
C) $78,750
D) $ 75,000
Answer: C
Diff: 2
Blooms: Apply
LO1: Explain how model validity can be assessed.
30) What will be the amount of employee contribution to retirement plan when Sheila has
reached the age of 38?
A) $7,441.88
B) $7,813.97
C) $24,450
D) $2381.40
Answer: A
Diff: 2
Blooms: Apply

31) Calculate the employer contribution in Sheila's fourth year at Simsin.

A) $546.98
B) $703.26
C) $2,500.47
D) $2,160
Answer: C
Diff: 2
Blooms: Apply
32) What's the total retirement balance when Sheila has reached the age of 40 while working
with Simsin?
A) $108,374.54
B) $56,253.36
C) $53,627.87
D) $91,163
Answer: B
Diff: 3
Blooms: Apply
In the spreadsheet below, there is data on the price, cost, demand, and quantity produced for an
item. There are also different "what if" values that can help a manager to calculate costs and
revenue with variability in demand.
A B C
1 Profit Model
2
What-If Demand
3 Data Values
4 20,000
5 Unit Price ($) 50 40,000
6 Unit Cost ($) 25 55,000
7 Fixed Cost ($) 550,000 60,000
8 Demand 60,000 65,000
9 Quantity Produced 55,000
10

33) Calculate the total revenue when the quantity produced is 55,000 and demand is 60,000.
A) $1,375,000
B) ($1,320,000)
C) $1,430,000
D) $2,750,000
Answer: D
Diff: 2
Blooms: Apply
Topic: Analyzing Uncertainty and Model Assumptions
LO1: Perform what-if analysis on spreadsheet models.
34) Calculate the variable cost when the demand is 60,000 units.
A) $1,430,000
B) $1,375,000
C) $2,750,000
D) $1,320,000
Answer: B
Diff: 2
Blooms: Apply
35) From the “what if” values, calculate the revenue if the demand is 60,000 units.
A) $2,750,000
B) $825,000
C) $75,000
D) $1,375,000
Answer: A
Diff: 2
Blooms: Apply
36) From the "what if" values, calculate the total cost when demand is 40,000.
A) “ 2,000,”00
B) $1,925,000
C) $1,100,000
D) $75,000
Answer: B
Diff: 2

Blooms: Apply
37) From the "what if" values, calculate the total profit when the demand is 20,00“.
A) $8”5,000
B) $1,000,000
C) $1,100,000
D) ($925,000)
Answer: D
Diff: 2
Blooms: Apply
38) From the "what if" values, calculate the net profit when the demand is 65,000.
A) $825,000
B) $1,650,000
C) $800,000
D) $925,000
Answer: A
Diff: 2
Blooms: Apply
39) Calculate the economic value of a loyal customer for a company given that the customer
purchases, on an average, worth $43 per visit and comes three times a year. The company's gross
profit margin is 35 per cent with a customer defection rate of 0.4.
RFM
Answer: The economic value of a loyal customer is, V, and it is calculated as V  ,
D
where, R = revenue per purchase;
F = purchase frequency per year;
M = gross profit margin;
D = defection rate.
From the data provided;

R = $43;
F = 3;
M = 35/100 = 0.35;

D = 0.4,
Therefore V = (43 × 3 × 0.35)/0.4 = $112.88

Diff: 2
Blooms: Apply
40) Gruten Retailers sells Mother’s Day special greeting cards at their store at $6. They make
the cards for a dollar apiece. Most of the cards are sold by Mother’s Day, but the actual demand
is unknown. They have orders for 120 cards. In the past, they have had sales of at least 100 cards
by Mother’s Day. The remaining cards are sold at a 40 percent discount. Calculate the net profit,
if demand, D, is set at 110 units.
Answer: Net profit is calculated as,
(R × quantity sold + S × surplus quantity) - (C × Q),
where, R = selling price, S, salvage value, C is the cost per unit, and Q, the quantity purchased.
From the data provided:
R = $6
S = $6(1-0.4) = $3.6
C=1
Q = 120
Quantity sold will be the minimum value between demand and quantity purchased which is 110
units here and surplus quantity is 10.
Therefore, net profit = 6 × 110 + 3.6 × 10 - 1 × 120 = $576.

Diff: 2
Blooms: Apply
41) Brenton joined the Kroos Corporation at a starting salary of $61,500. According to the
company's retirement plan, Brenton has to make a retirement contribution of 6 percent of his
salary. The company contributes 30 percent of this amount. Brenton is expected to receive a
salary increment of 3.5 percent per year for the next three years. Brenton is also expected to
receive an annual investment return of 8 percent on the plan. Assuming the same rate of salary
increases and investment returns each year, calculate the total balance of the retirement plan in
its second year.
Answer: Brenton joined the Kroos Corporation at $61,500. At an annual increment of 3.5
percent, Brenton's salary in the second year would be

= 61,500 × (1 + 0.035) = $63,652.50. …. (1)

Brenton's contribution to the retirement plan = (1) × 6 percent
= 63,625.5 × 6/100 = $3,819.15. …. (2)
The employer contribution is 30 percent of (2)
Therefore, the employer contribution for the second year
= 3,819.15 × 30/100 = 3,819.15 × 0.3 = $1,145.75. …. (3)
In order to calculate the total balance for the second year, we must also calculate the retirement
plan balance of the previous year.
Brenton's starting salary is $61,500.
Therefore, his contribution in the first year
= 61,500 × 0.06 = $3,690. …. (4)
The employer contribution for the first year
= 3,690 × 0.3 = $1,107. …. (5)
Therefore, the balance for the first year is calculated as (4) + (5)
= 3,690 + 1,107 = $4,797. …. (6)
From (6), we can now calculate the balance for the second year using the investment return on
the retirement plan.
Therefore, total balance for the second year
= (6) × (1 + 0.08) + (2) + (3)
= (4,796 × 1.08) + 3,819.15 + 1,145.75
= $10,145.66.
Diff: 2
Blooms: Apply
42) Blue Sunset Band is planning to record a new album. A major decision to be made is if the
band can record the album on their own, or if they should hire a studio to record it with. The
fixed cost for recording at the studio is $100,000, plus the manufacturing cost per CD, which is
at $5. If they record the album in-house, the cost per CD is $10. They plan to produce 3000
copies of the album regardless of the place of recording. If the band wished to break even with
the cost, how can they achieve this by using the Goal Seek feature in Excel?
A B
1 The Blue Sunset Band Album Recording Decision
2
3 Data
4
5 Recording at Studio
6 Fixed Cost $ 100,000
7 Unit CD Cost $ 5
8

9 Recording In-house
10 Unit CD Cost $ 10
11
12 Production Volume 3000
13
14 Model
15
16 Total studio manufacturing cost $ 115,000
17 Total in-house manufacturing cost $ 30,000
18
19 Cost Difference $ 85,000
20 Recording Decision In-house
Answer: The break-even point is the value of demand volume for which total in-house
manufacturing cost equals total manufacturing cost in studio, or, equivalently, for which the cost
difference is zero.
Therefore, you seek to find the value of production volume in cell B12 that yields a value of zero
in cell B19.
In the Goal Seek dialog, enter B19 that contains the formula for the Set cell, enter 0 in the To
value box, and enter B12 in the By changing cell box.
The Goal Seek tool determines that the break-even volume is 20,000 and enters this value in cell
B12 in the model.
A B
1 The Blue Sunset Band Album Recording Decision
2
3 Data
4
5 Recording at Studio
6 Fixed Cost $ 100,000
7 Unit CD Cost $ 5
8
9 Recording In-house
10 Unit CD Cost $ 10
11
12 Production Volume 20,000
13
14 Model
15
16 Total studio manufacturing cost $ 200,000
17 Total in-house manufacturing cost $ 200,000
18
19 Cost Difference $ 0
20 Recording Decision In-house

Diff: 3
Blooms: Apply
LO1: Apply the Excel Goal Seek tool for break-even analysis and other types of models.
43) Which of the following formulas is used to calculate the total studio recording cost?
A) =SUM(B6:B12)-B10
B) (B6+B7-B16)B12
C) B6+B7*B12
D) B6+B7*B12-B16
Answer: C
Diff: 2
Blooms: Apply
models.
44) Which of the following formulas are used to calculate the In-house recording cost?
A) B10*B12
B) B10*B12-B17
C) B6+B10*B12
D) =SUM(B6:B12)-B7
Answer: A
Diff: 2
Blooms: Apply
models.
45) Which of the following formula is used to make the recording decision in B20?
A) =IF(B19>0,"In-house","Studio")
B) =IF(B19<=0,"Studio","In-house")
C) =SUM(B19<=0,"Studio")
D) =IF(B19>0,"Studio","In-house")
Answer: B
Diff: 2
Blooms: Apply
LO1: Apply principles of spreadsheet engineering to designing and implementing spreadsheet models.

46) The process of developing good, useful, and correct spreadsheet models is known as
spreadsheet engineering.
Answer: TRUE
Diff: 1
Blooms: Remember
LO1: Use Excel features and spreadsheet engineering to ensure the quality of spreadsheet
models.
47) In predictive modeling, validity refers to how well a model represents reality.
Answer: TRUE
Diff: 1
Blooms: Remember
48) Two-way data tables can evaluate only one output variable.
Answer: TRUE
Diff: 1
Blooms: Remember
LO1: Construct one- and two-way data tables using Excel.
49) Give an account of how the design and format of spreadsheets can be improved.
Answer: A logical design of the spreadsheet should be sketched after inputs, outputs, and key
model relationships are well understood. For example, the spreadsheet should resemble a
financial statement to make it easier for managers to read. It is good practice to separate the
model inputs from the model itself and to reference the input cells in the model formulas; that
way, any changes in the inputs will be automatically reflected in the model as shown in the text
examples. Another useful approach is to break complex formulas into smaller pieces. This
reduces typographical errors, makes it easier to check your results, and also makes the
spreadsheet easier to read for the user. Finally, it is also important to set up the spreadsheet in a
form that the end user, like a financial manager, can easily interpret and use.
Diff: 1
Blooms: Understand
models.
50) Explain how the Data Validation feature in Excel helps in increasing spreadsheet quality.
Answer: The Data Validation feature allows you to define restrictions on what data can or

should be entered in a cell. For example, it does not make sense to input a quantity produced that
is not a whole number. You can prevent users from entering data that are not valid or allow users
to enter invalid data but warn them when they try to type it in the cell. You can also provide
messages to define what input you expect for the cell, and instructions to help users correct any
errors. Data Validation can be found in the Data Tools group in the Data tab in the Excel ribbon.
Diff: 1
Blooms: Understand
models.
51) Give an account of how data is used in predictive models.

Answer: Data used in models can come from subjective judgment based on past experience,
existing databases and other data sources, analysis of historical data, or surveys, experiments,
and other methods of data collection. For example, in the profit model, querying accounting
records for values of the unit cost and fixed costs. Statistical methods are often used to estimate
data required in predictive models. For example, historical data is used to compute the mean
demand; quartiles or percentiles are used in the model to evaluate different scenarios. However,
even if data are not available, using a good subjective estimate is better than sacrificing the
completeness of a model that may be useful.
Diff: 1
Blooms: Remember
52) Discuss how overbooking decisions are made by service businesses.

Answer: An important operations decision for service businesses such as hotels, airlines, and
car-rental companies is the number of reservations to accept to effectively fill capacity knowing
that some customers may not use their reservations or tell the business. If a hotel, for example,
holds rooms for customers who do not show up, they lose revenue opportunities. A common
practice in these industries is to overbook reservations. When more customers arrive than can be
handled, the business usually incurs some cost to satisfy them. Therefore, the decision becomes
how much to overbook to balance the costs of overbooking against the lost revenue for underuse.
Diff: 1
Blooms: Remember
53) How can managers judge the validity of a model?

Answer: Models cannot capture every detail of the real problem, and managers must understand
the limitations of models and their underlying assumptions. Validity refers to how well a model
represents reality. One approach for judging the validity of a model is to identify and examine

the assumptions made in a model to see how they agree with our perception of the real world; the
closer the agreement, the higher the validity. A “perfect” model corresponds to the real world in
every respect; unfortunately, no such model has ever existed and never will exist in the future,
because it is impossible to include every detail of real life in one model. To add more realism to
a model generally requires more complexity and analysts have to know how to balance these.
Diff: 1
Blooms: Remember
54) Explain how a two-way data table is created.

Answer: To create a two-way data table, type a list of values for one input variable in a column
and a list of input values for the second input variable in a row, starting one row above and one
column to the right of the column list. In the cell in the upper left-hand corner immediately above
the column list and to the left of the row list, enter the cell reference of the output variable you
wish to evaluate. Select the range of cells that contain this cell reference and both the row and
column of values. On the What-If Analysis menu, click Data Table. In the Row input cell of the
dialog box, enter the reference for the input cell in the model that corresponds to the input values
in the row. In the Column input cell box, enter the reference for the input cell in the model that
corresponds to the input values in the column. Then click OK.
Diff: 1
Blooms: Remember
LO1: Construct one- and two-way data tables using Excel.
55) The total cost of reaching consumers (C) depends upon the number of consumers (N),
advertising costs (A), and transportation costs (T). The linear cost prediction model is
represented as:
C = c - nN + aA + tT
where c, n, a, and t are constants and c estimates the total cost when the remaining variables are
zero. Which of the following interpretations is true about this model?
A) Change in variables N, A, and T will cause n, a, and t to change.
B) As n decreases, c will increase.
C) When variables N, A, and T are zero, C = c - n + a + t.
D) Change in variables N, A, and T will not reflect any changes in c.
Answer: D
Diff: 3
Blooms: Apply
Topic: Predictive Spreadsheet Models
56) Which of the following is the mathematical model for deriving total cost of only
manufacturing?

A) TC = VC + (C × Q)
B) TC = F + (C × Q)
C) TC = F + C
D) TC = F + (V × Q)
Answer: D
Diff: 2
Blooms: Apply
57) Which of the following is the mathematical model for deriving total cost of only
outsourcing?
A) TC = Q x C
B) TC = F + (C x Q)
C) TC = (V + C) x Q
D) TC = (VC + F) x Q
Answer: A
Diff: 2
Blooms: Apply
58) Which of the following is the mathematical model for deriving the break-even volume?
A) Q = (C - VC) + F
B) Q = F / (C -V)
C) Q = (V + C) / F
D) Q = F / (VC - C)
Answer: B
Diff: 2
Blooms: Apply
59) When will a company use a predictive decision model?

A) when it wishes to determine the best product pricing to maximize revenue
B) when it wishes to know how best to use advertising strategies to influence sales
C) when it wishes to know sales patterns to plan inventory levels

D) when it wishes to ensure that a specified level of customer service is achieved

Answer: C
Diff: 2
Blooms: Understand
60) Which decision model incorporates the uncertainty element?

A) predictive
B) normative
C) prescriptive
D) descriptive
Answer: A
Diff: 1
Blooms: Remember
61) To meet consumer demand, Nib 'N' Ink must produce 800 gel-ink refills. Should the
company produce them in-house or outsource them from the supplier? (Hint: Use the
mathematical descriptive model).
Answer: Total Cost of Manufacturing (TC) = Fixed Cost (F) + Variable Cost (VC)
VC = Unit Variable Cost (V) × Quantity Produced (Q)
TC = F + VQ = 2,400 + 3 x 800 = 4,800
Total Cost of Outsourcing (TC) = Unit Cost (C) x Quantity Outsourced (Q)
TC = CQ = 5 × 800 = 4,000
The gel-ink refills must be outsourced with the total cost of manufacturing the refills in-house
being greater than outsourcing them.
Diff: 3
Blooms: Apply
62) Find the range of volumes at which it is more economical for Nib 'N' Ink to produce the
refills in-house or outsource them. (Hint: Use the break-even decision model).
Answer: Break-even volume can be arrived at by setting TC (manufacturing) = TC
(outsourcing) and solving for Q.

F+V×Q=C×Q
Q = F / (C - V) = 2,400 / (5 - 3) = 1,200
Thus, if the anticipated production volume is greater than 1,200, it is more economical to
manufacture the refills; if it is less than 1,200, then they should be outsourced.
Diff: 3
Blooms: Apply
63) Profit is computed as the difference between total revenue from sales and total cost of
production. Revenue depends on the market share captured by a company and the size of the
target market. Various marketing decisions taken by managers are reflected upon the market
share. The decisions also have an impact on marketing costs which in turn will affect the total
cost of production. Construct an influence diagram that relates these variables.
Answer:
Diff: 3
Blooms: Apply
LO1: Define and provide an example of an influence diagram.

Chapter 12: Simulation and Risk Analysis
1) Which of the following best defines Monte Carlo simulation?

A) It is a tool for building statistical models that characterize relationships among a dependent
variable and one or more independent variables.
B) It is a collection of techniques that seeks to group or segment a collection of objects into
subsets.
C) It is the process of selecting values of decision variables that minimizes or maximizes some
quantity of interest.
D) It is the process of generating random values for uncertain inputs in a model and computing
the output variables of interest.
Answer: D
Diff: 1
Blooms: Remember
Topic: Monte Carlo Simulation
LO1: Explain the concept of Monte Carlo simulation and its importance of analyzing risk in
business decisions.
2) Why is the ROUND function used in Excel?

A) to ensure that the values generated are whole numbers
B) to ensure that the values generated are multiples of ten
C) to ensure that the values generated are always positive
D) to ensure that the values are even numbers
Answer: A
Diff: 1
Blooms: Remember
Topic: Monte Carlo Simulation in Excel
LO1: Use data tables to conduct simple Monte Carlo simulations.
3) Which of the following statements is true of a triangular distribution?

A) We are required to know only the smallest and largest possible values that the variable might
assume.
B) These distributions depend on multiple parameters that one can easily identify based on
managerial knowledge and judgment.
C) The distribution has a limited range and can be skewed in either direction.
D) The distribution is very positively skewed, with no negative values.
Answer: C
Diff: 1
Blooms: Remember
LO1: Generate random variates for common probability distributions using Excel functions..

223
224 Chapter 12: Monte Carlo Simulation and Risk Analysis Business Analytics, 3e
Use the information below to answer the following question(s).
Consider the following spreadsheet for an outsourcing decision model.
A B
1 Outsourcing Decision Model
2
3 Data
4
5 Manufactured in-house
6 Fixed cost $ 60,000
7 Unit variable cost $ 130
8
9 Purchased from supplier
10 Unit cost $ 165
11
12 Demand volume 1,000
13
14 Model
15
16 Total manufacturing cost
17 Total purchased cost
18
19 Difference
20 Decision
We assume that the production (demand) volume is normally distributed with a mean of 1,000
and a standard deviation of 100. For the unit cost, select the triangular distribution. It has a
minimum value of $150, most likely value of $165, and a maximum value of $190. The number
of trials per simulation is equal to 5,000 at a Sim. Random Seed of 1. Run the simulation and
answer the following question(s) using the Analytic Solver Platform.
[Hint: choose the closest value.]
4) What is the value of mean obtained from the simulation results?

A) $18,385
B) $21,608
C) $14,894
D) $23,946
Answer: B
Diff: 2
Blooms: Apply
LO2: Analyze and interpret simulation results.

Chapter 12: Monte Carlo Simulation and Risk Analysis Business Analytics, 3e 225
5) What is the value of standard deviation obtained from the simulation results?
A) $9,175
B) $7,884
C) $3,860
D) $12,870
Answer: A
Diff: 2
Blooms: Apply
6) What is the value of mode obtained from the simulation results?

A) $28,435
B) $22,485
C) $27,198
D) $25,394
Answer: B
Diff: 2
Blooms: Apply
7) What is the value of mean absolute deviation obtained from the simulation results?
A) $10,893
B) $3,476
C) $7,443
D) $5,885
Answer: C
Diff: 2
Blooms: Apply

8) What is the expected loss determined from the simulation results?

A) $(78)
B) $(120)
C) $(60)
D) $(47)
Answer: D
Diff: 2
Blooms: Apply
9) What is the cost difference lower cutoff in thousands of dollars if the likelihood is 60%?
A) approximately 13.56
B) approximately 22.45
C) approximately 29.67
D) approximately 38.97
Answer: A
Diff: 2
Blooms: Apply
10) What is the cost difference upper cutoff in thousands of dollars if the likelihood is 75%?
A) approximately 46
B) approximately 28
C) approximately 32
D) approximately 59
Answer: C
Diff: 2
Blooms: Apply

Below is a spreadsheet for Trance Electronics.

A B C D E F
1 Trance Electronics
2
3 Data
4
5 Market size 20,000,000
6 Unit (monthly Rx) revenue $ 120.00
7 Unit (monthly Rx) cost $ 50.00
8 Discount rate 8%
9
10 Project costs
11 R&D $ 750,000,000
12 Clinical Trials $ 100,000,000
13 Total Project Costs
14
15 Model
16
17 Year 1 2 3 4 5
18 Market growth factor 4% 4% 4% 4%
19 Market size
20 Market share growth rate 18% 18% 18% 18%
21 Market share 7%
22 Sales
23
24 Annual revenue
25 Annual costs
26 Profit
27 Cumulative net profit
28
29 Net present value
Suppose that the project manager of Trance Electronics has identified the following uncertain
variables in the model and the distributions and parameters that describe them, as follows:
Market size: normal with mean of 20,000,000 units and standard deviation of 4,000,000 units.
R&D costs: uniform between $600,000,000 and $800,000,000.
Clinical trial costs: lognormal with mean of $150,000,000 and standard deviation $30,000,000.
Annual market growth factor: triangular with minimum = 2%, maximum = 6%, and most
likely = 3%.
Annual market share growth rate: triangular with minimum = 15%, maximum = 25%, and
most likely = 20%.
The number of trials per simulation is equal to 10,000 at a Sim. Random Seed of 2. Run the
simulation and answer the following questions using the Analytic Solver Platform.


11) What is the standard deviation obtained from the simulation results of the net present
value? A) $204,868,924
B) $162,135,408
C) $182,992,245
D) $138,134,040
Answer: D
Diff: 2
Blooms: Apply
12) What is the coefficient of variation obtained from the simulation results of the net present
value?
A) 1.78392
B) -2.23958
C) -1.36659
D) 2.87645
Answer: C
Diff: 2
Blooms: Apply
13) What is the expected loss ratio obtained from the simulation results of the net present value?
A) 93.50%
B) 72.45%
C) 67.32%
D) 86.32%
Answer: D
Diff: 2
Blooms: Apply

14) What is the expected value margin obtained from the simulation results of the net present
value?
A) 0.864
B) -0.726
C) 0.343
D) -0.467
Answer: B
Diff: 2
Blooms: Apply
15) What is the risk that the net present value over the 5 years will not be positive?
A) approximately 40%
B) approximately 57%
C) approximately 24%
D) approximately 77%
Answer: D
Diff: 3
Blooms: Apply
16) What are the chances that the product will show a cumulative net profit in the fourth year?
A) approximately 25%
B) approximately 18%
C) approximately 11%
D) approximately 32%
Answer: C
Diff: 3
Blooms: Apply

17) What cumulative profit in the fifth year is likely to be realized with a probability of 0.50?
A) $78,244,098
B) $101,970,955
C) $144,058,696
D) $203,676,827
Answer: B
Diff: 3
Blooms: Apply
18) What is the correlation of the market size with the NPV with reference to the sensitivity
chart?
A) 0.043
B) 0.888
C) -0.341
D) -0.026
Answer: B
Diff: 3
Blooms: Apply
19) What is the correlation of the R&D cost with the NPV with reference to the sensitivity chart?
A) -0.404
B) 0.028
C) 0.908
D) -0.194
Answer: A
Diff: 2
Blooms: Apply

20) Which year shows the highest mean net cumulative profit?
A) Year 1
B) Year 2
C) Year 4
D) Year 5
Answer: D
Diff: 3
Blooms: Apply
21) Which year shows the highest uncertainty in forecasting the future?
A) Year 1
B) Year 3
C) Year 4
D) Year 5
Answer: D
Diff: 2
Blooms: Understand
Answer the following question(s) using the Analytic Solver Platform (5000 trials per simulation;
use the Latin Hypercube sampling method).
Consider the spreadsheet for a Monte Carlo Simulation in Excel.
A B C D E
Monte Carlo Simulation Historical
1 in Excel Candy Sales $ 264.00
2 50 $ 264.00
3 Data 45 $ 264.00
4 40 $ 228.00
5 Selling price $ 18.00 46 $ 264.00
6 Cost $ 12.00 43 $ 255.00
7 Discount price $ 9.00 43 $ 255.00
8 46 $ 264.00
9 Model 42 $ 246.00
10 44 $ 264.00
11 Demand 44 43 $ 255.00

12 Purchase Quantity 44 47 $ 264.00

13 41 $ 237.00
14 Quantity Sold 41 $ 237.00
15 Surplus Quantity 45 $ 264.00
16 51 $ 264.00
17 Profit 43 $ 255.00
18 45 $ 264.00
19 42 $ 246.00
20 44 $ 264.00
21 48 $ 264.00
22 Average Profit
22) Which of the following cells is defined as the uncertain function cell?
A) B12
B) B14
C) B15
D) B17
Answer: D
Diff: 1
Blooms: Apply
23) What is the value of mean profit?

A) $255.90
B) $251.45
C) $245.98
D) $264.00
Answer: A
Diff: 2
Blooms: Apply
24) What is the value of standard

deviation? A) $12.50
B) $10.99
C) $15.86
D) $20.25
Answer: B

Diff: 2
Blooms: Apply
25) What is the value of mode?

A) $228
B) $245
C) $255
D) $264
Answer: D
Diff: 2
Blooms: Apply
26) What is the value of mean absolute deviation?

A) $8.91
B) $5.45
C) $12.35
D) $15.64
Answer: A
Diff: 2
Blooms: Apply
LO1: Conduct Monte Carlo simulation using historical data and resampling techniques.
27) What is the purchase quantity lower cutoff if the likelihood is 75%?
A) 264
B) 255
C) 246
D) 228
Answer: C
Diff: 2
Blooms: Apply

Below is a spreadsheet for a hotel overbooking model.
A B C D E
Hotel Monte Carlo
1 Simulation in Excel Demand Probability
2 290 0.03
3 Data 295 0.05
4 300 0.08
5 Rooms available 350 305 0.12
6 Price $ 120 310 0.15
7 Overbooking cost $ 100 315 0.20
8 320 0.15
9 Model 325 0.10
10 330 0.05
11 Reservation limit 350 335 0.04
12 Customer demand 320 340 0.02
13 Reservations made 345 0.01
14 Cancellations 15
15 Customer arrivals
16
17 Overbooked customers
18 Net revenue
Assume that each reservation has a constant probability p = 0.04 of being cancelled. Answer the
question(s) using the Analytic Solver Platform.
28) With respect to B12, what is the range for values given in the Parameters section in the
Discrete dialog?
A) $E$2:$E$13
B) $D$2:$D$8
C) $D$2:$D$13
D) $E$2:$E$8
Answer: C
Diff: 2
Blooms: Apply

29) With respect to B12, what is the range of weights given in the Parameters section in the
Discrete dialog?
A) $E$2:$E$13
B) $D$2:$D$8
C) $D$2:$D$13
D) $E$2:$E$8
Answer: A
Diff: 2
Blooms: Apply
30) With respect to B14, what should the number of trials correspond to in the Parameters
section of the Binomial dialog?
A) reservation limit
B) customer demand
C) reservations made
D) customer arrivals
Answer: C
Diff: 2
Blooms: Apply
31) Which of the following cells is defined as an output cell?

A) B13
B) B14
C) B15
D) B17
Answer: D
Diff: 2
Blooms: Apply
32) A normal distribution has a limited range and can be skewed in either direction.
Answer: FALSE
Diff: 1

Blooms: Remember
LO1: Generate random variates for common probability distributions using Excel functions.
33) Uniform or triangular distributions are used in the absence of

data. Answer: TRUE
Diff: 1
Blooms: Remember
34) As Monte Carlo simulation is essentially statistical sampling, the larger the number of trials
used, the more precise is the result.
Answer: TRUE
Diff: 1
Blooms: Remember
35) What is Monte Carlo simulation?

Answer: Monte Carlo simulation is the process of generating random values for uncertain inputs
in a model, computing the output variables of interest, and repeating this process for many trials
in order to understand the distribution of the output results. It can easily be accomplished for the
outsourcing model using a data table.
Diff: 1
Blooms: Remember

Chapter 13: Linear Optimization
1) Which of the following best defines decision variables in an optimization model?

A) They are limitations, requirements, or other restrictions that are imposed on any solution.
B) They are the quantities that the model seeks to maximize or minimize.
C) They are quantities for which no feasible solutions exist.
D) They are unknown values that the model seeks to determine.
Answer: D
Diff: 1
Blooms: Remember
Topic: Developing Linear Optimization Models
LO1: Apply the four-step process to show a mathematical model for an optimization problem.
2) Which of the following best defines objective functions?

A) They are limitations, requirements, or other restrictions that are imposed on any solution in an
optimization model.
B) They are quantities that an optimization model seeks to maximize or minimize.
C) They are quantities for which no feasible solutions exist in an optimization model.
D) They are unknown values that an optimization model seeks to determine.
Answer: B
Diff: 1
Blooms: Remember
3) Which of the following best defines constraints in an optimization problem?

A) They are limitations, requirements, or other restrictions that are imposed on any solution.
B) They are quantities that an optimization model seeks to maximize or minimize.
C) They are quantities for which no feasible solutions exist.
D) They are unknown values that the model seeks to determine.
Answer: A
Diff: 1
Blooms: Remember
Use the following information to answer the following question(s), using the SUMPRODUCT
function.
Stone Age Surfboards is a small manufacturer of two types of popular high-tide surfboards, the
Rockwell and the Limestone models. The manufacturing process consists of two departments:
fabrication and finishing. The fabrication department has 15 skilled workers, each of whom

237
238 Chapter 13: Linear Optimization Business Analytics, 3e
works 5 hours per day. The finishing department has 5 workers, who also work a 5-hour shift.
Each pair of Rockwell surfboards requires 3 labor hours in the fabrication department and 1.5
labor hours in finishing. The Limestone model requires 4.5 labor-hours in fabrication and 2
labor-hours in finishing. The company operates 6 days a week. It makes a per-unit profit of $60
on the Rockwell model and $75 on the Limestone model. Approximately 4.1 Rockwell models
and 8.4 Limestone models are produced per day.
A B C D
1 Stone Age Surfboards
2
3 Data
4 Product
5 Department Rockwell Limestone Limitation (hours)
6 Fabrication 3 4.5 75
7 Finishing 1.5 2 25
8
9 Profit/Unit $60.00 $75.00
10
11
12 Model
13 Rockwell Limestone
14 Quantity Produced 4.1 8.4 Hours Used
15 Fabrication
16 Finishing
17
18 Excess Limestone
19 Market Mixture
20
21 Total Profit
22 Profit Contribution
4) What is the total number of hours used for fabrication?

A) 42.58
B) 50.10
C) 35.64
D) 22.95
Answer: B
Diff: 2
Blooms: Apply
LO1: Implement linear optimization models on spreadsheets.

Chapter 13: Linear Optimization Business Analytics, 3e 239
5) What is the total number of hours used for the finishing operation?
A) 42.58
B) 50.10
C) 35.64
D) 22.95
Answer: D
Diff: 2
Blooms: Apply
6) What is the total profit generated?

A) $ 876.00
B) $ 675.50
C) $ 480.50
D) $ 965.00
Answer: A
Diff: 2
Blooms: Apply
Consider the spreadsheet for Stone Age Surfboards provided below. Use this data to answer the
following question(s), using the Standard Solver.
Stone Age Surfboards is a small manufacturer of two types of popular low-tide surfboards, the
Graystone and the Lava models. The manufacturing process consists of two departments:
fabrication and finishing. The fabrication department has 8 skilled workers, each of whom works
9.25 hours per day. The finishing department has 5 workers, each of whom works a 6-hour shift
per day. Each pair of Graystone surfboards requires 2.5 labor hours in the fabrication department
and 2 labor hours in finishing. The Lava model requires 4.2 labor-hours in fabrication and 3.6
labor-hours in finishing. The company operates 6 days a week. It makes a per unit profit of $40
on the Graystone model and $60 on the Lava model. The company anticipates selling at least
twice as many Lava models as Graystone models.

A B C D
2
3 Data
4 Product
5 Department Graystone Lava Limitation (hours)
6 Fabrication 2.5 4.2 74
7 Finishing 2 3.6 30
8
9 Profit/Unit $40.00 $60.00
10
11
12 Model
13 Graystone Lava
14 Quantity Produced Hours Used
15 Fabrication
16 Finishing
17
18 Excess Lava
19 Market Mixture
20
21 Total Profit

A) 54.5
B) 30.0
C) 35.5
D) 43.8
Answer: C
Diff: 2
Blooms: Apply
Topic: Solving Linear Optimization Models
LO1: Use the Solver add-in to solve linear optimization models in Excel.
A) 18.7
B) 30.0
C) 35.5
D) 24.2
Answer: B

Diff: 2
Blooms: Apply

A) $ 675.68
B) $ 920.57
C) $ 521.74
D) $ 788.32
Answer: C
Diff: 2
Blooms: Apply
10) What is the value of slack obtained from the answer report?
A) 46.78
B) 38.46
C) 59.24
D) 23.85
Answer: B
Diff: 2
Blooms: Apply
11) What is the Allowable Increase for Lava surfboards produced?

A) 30
B) 24
C) 12
D) 18
Answer: C
Diff: 2
Blooms: Apply
Topic: Solver Outcomes and Solution Messages

12) What is the Allowable Decrease for Graystone surfboards produced?

A) 30.74
B) 80.00
C) 12.33
D) 6.67
Answer: D
Diff: 2
Blooms: Apply
13) What is the shadow price for the finishing hours used?
A) 32.46
B) 17.39
C) 8.33
D) 6.67
Answer: B
Diff: 2
Blooms: Apply
Topic: Visualization of Solver Reports
LO1: Use Excel to evaluate scenarios for linear optimization models and gain practical insights
into the solutions.
14) What is the Allowable Increase in the finishing hours used?

A) 32.46
B) 8.33
C) 26.84
D) 16.67
Answer: A
Diff: 2
Blooms: Apply
15) What is the Allowable Decrease in the fabrication hours

used? A) 26.84
B) 16.67
C) 8.33
D) 38.46
Answer: D

Diff: 2
Blooms: Apply
16) What will be the total profit contribution from Lava surfboards?
A) $ 391.30
B) $ 521.74
C) $ 130.43
D) $ 276.65
Answer: A
Diff: 2
Blooms: Apply
LO1: List the four possible outcomes when solving a linear optimization model and recognize
them from Solver messages.
17) What will be the total profit contribution from Graystone surfboards?
A) $ 391.30
B) $ 521.74
C) $ 130.43
D) $ 276.65
Answer: C
Diff: 2
Blooms: Apply
18) Which of the following solving methods is selected in the Solver dialog for linear and linear
integer optimization problems?
A) GRG Nonlinear
B) Simplex LP
C) SOCP Barrier Engine
D) Evolutionary
Answer: B
Diff: 1
Blooms: Remember

Use the following information to answer the question(s) below.
Cerebro Manufacturing produces four types of structural support fittings-plugs, rails, rivets, and
clips-which are machined on two CNC machining centers. The machining centers have a
capacity of 250,000 minutes per year. The gross margin per unit and machining requirements are
shown in the spreadsheet below.
A B C D E F
Cerebro
1 Manufacturing Model
2
Machine
Capacity
3 Product Plugs Rails Rivets Clips (mins./year)
4 Gross margin/unit $ 0.40 $ 1.20 $ 0.80 $ 1.10
5 Minutes/unit 1 2 3 1.5 250,000
6 Gross margin/minute
7 Maximum production
8 Profit
19) What is the gross margin per minute of plugs manufactured?

A) $ 0.60
B) $ 0.73
C) $ 0.40
D) $ 0.27
Answer: C
Diff: 1
Blooms: Apply
Topic: How Solver Works
LO1: Explain how Solver works.
20) What is the gross margin per minute of rivets manufactured?

A) $ 0.60
B) $ 0.73
C) $ 0.40
D) $ 0.27
Answer: D
Diff: 1
Blooms: Apply

21) What is the maximum possible production of rails based on the machine capacity?
A) 250,000.00
B) 83,333.33
C) 166,666.67
D) 125,000.00
Answer: D
Diff: 1
Blooms: Apply
22) What is the maximum production of clips based on the machine capacity?
A) 250,000.00
B) 83,333.33
C) 166,666.67
D) 125,000.00
Answer: C
Diff: 1
Blooms: Apply
23) What is the total profit generated from the manufacture of only plugs?
A) $ 66,666.67
B) $ 100,000.00
C) $ 183,333.33
D) $ 150,000.00
Answer: B
Diff: 1
Blooms: Apply
24) What is the total profit generated from the manufacture of rivets?
A) $ 66,666.67
B) $ 100,000.00
C) $ 183,333.33
D) $ 150,000.00
Answer: A
Diff: 1

Blooms: Apply
25) Which of the following options is used if Solver gives an error message that linearity is not
satisfied?
A) Ignore Integer Constraints
B) Show Iteration Results
C) Use Automatic Scaling
D) Use Multistart
Answer: C
Diff: 1
Blooms: Remember
26) When a model has a unique optimal solution, it means that .

A) the objective is maximized or minimized by more than one combination of decision variables
B) there is no solution that simultaneously satisfies all the constraints
C) the Allowable Increase or Allowable Decrease values for changing cells are zero
D) there is exactly one solution that will result in the maximum or minimum objective
Answer: D
Diff: 1
Blooms: Remember
27) If a model has alternative optimal solutions, .

C) the objective can be increased or decreased to infinity or negative infinity
Answer: A
Diff: 1
Blooms: Remember

28) Alternate optimal solutions exist when the .

A) reduced cost is equal to the shadow price
B) ratio of the objective coefficient to the constraint coefficient is one
C) Allowable Increase values for changing cells are zero
D) final value of the changing cells is greater than that of the constraints
Answer: C
Diff: 1
Blooms: Remember
29) An unbounded problem is one for which .

C) the objective can be increased or decreased to infinity or negative infinity while the solution
remains feasible
Answer: C
Diff: 2
Blooms: Remember
30) An infeasible problem is one for which .

C) the objective can be increased or decreased to infinity or negative infinity
Answer: B
Diff: 1
Blooms: Remember
31) A constraint function is a function of the decision variables in the problem.

Answer: TRUE
Diff: 1
Blooms: Remember

32) Any solution that satisfies all constraints of a problem is called a feasible solution.
Answer: TRUE
Diff: 1
Blooms: Remember
33) A binding constraint is one for which the Cell Value is greater than the right-hand side of the
value of the constraint.
Answer: FALSE
Diff: 1
Blooms: Remember
34) Infeasible problems can occur when the demand requirement is higher than the available
capacity.
Answer: TRUE
Diff: 1
Blooms: Remember
35) What are the two basic properties of a linear optimization model?
Answer: A linear optimization model has two basic properties: (1) The objective function and
all constraints are linear functions of the decision variables. This means that each function is
simply a sum of terms, each of which is some constant multiplied by a decision variable. (2) All
variables are continuous, meaning that they may assume any real value. This assumption may not
be realistic for a practical business problem, but it simplifies the solution method.
Diff: 1
Blooms: Remember
Topic: Optimization Models
LO1: State the properties that characterize linear optimization models.
36) What are the Excel functions to avoid in linear optimization?

Answer: Several common functions in Excel can cause difficulties when attempting to solve
linear programs using Solver because they are discontinuous and no longer satisfy the conditions
of a linear model. Common Excel functions to avoid are ABS, MIN, MAX, INT, ROUND, IF,

and COUNT.
Diff: 1
Blooms: Remember
37) Explain the simplex method used by Solver.

Answer: Solver uses a mathematical algorithm called the simplex method. It characterizes
feasible solutions algebraically by solving systems of linear equations. It moves systematically
from one corner point to another to improve the objective function until an optimal solution is
found. Because of the linearity of the constraints and objective function, the simplex method is
guaranteed to find an optimal solution if one exists and usually does so quickly and efficiently.
Diff: 1
Blooms: Remember
38) What are the four possible outcomes that can be obtained by solving a linear optimization
model?
Answer:
• When a model has a unique optimal solution, it means that there is exactly one solution that
will result in the maximum (or minimum) objective.
• If a model has alternative optimal solutions, the objective is maximized (or minimized) by
more than one combination of decision variables.
• An unbounded problem is one for which the objective can be increased or decreased
without bound.
• An infeasible problem is one for which no feasible solution exists.
Diff: 1
Blooms: Remember
39) Which of the following is an example of a simple bounds constraint?

A) confirming that production does not go beyond a certain unit value
B) reducing production due to scarcity of resources
C) meeting targets for a specific sales job
D) equaling production in September with the resources available at the end of August
Answer: A
Diff: 1
Blooms: Understand
LO1: Recognize different types of constraints in problem statements.

40) Problem statements such as production must be sufficient to meet promised customer orders
would be categorized as a constraint.
A) limitations
B) requirements
C) proportional relationships
D) balance
Answer: B
Diff: 1
Blooms: Remember
41) constraints essentially state that input = output and ensure that the flow of material
or money is accounted for at locations or between time periods.
A) Requirements
B) Proportional relationships
C) Balance
D) Limitations
Answer: C
Diff: 1
Blooms: Remember
42) Which of the following would be considered as an example of a proportional relationships

constraint?
A) making certain that only a certain amount of units are produced
B) guaranteeing that a certain amount of workforce will be available for a certain month
C) balancing the input to the output during production
D) ensuring that the budget allocated to marketing is thrice that of research and development
Answer: D
Diff: 1
Blooms: Understand
43) Problem statements such as the amount of material used in production cannot exceed the
amount available in inventory would be categorized as a constraint.
A) proportional relationships
B) limitations
C) requirements
D) simple bounds
Answer: B

Diff: 1
Blooms: Understand
Qualis Investments is a private limited business that manages personal financial portfolios. The
company manages six mutual funds and has a client that has acquired $750,000 from an
inheritance. Characteristics of the funds are given in the table below.
Qualis Mutual Fund Data

Expected Annual
Return Risk Measure
1 Qualis Low-priced Stock Fund 7.23% 11.87
2 Qualis Multinational Fund 8.42% 12.62
3 Qualis Mid-cap Stock Fund 6.66% 13.72
4 Qualis Mortgage Fund 2.72% 3.37
5 Qualis Income Equity Fund 8.89% 8.4
6 Qualis Balanced Fund 3.50% 6.91
The company recommends that no more than $300,000 be invested in any individual fund, and
that at least $80,000 be invested in each of the mid-cap stock and mortgage fund. The total
amount invested in the low-priced and multinational funds are at least 35% of the total
investment. The client would like an average return of at least 6%. Assume that X1- X6
represent the dollar amounts invested in funds 1 through 6, respectively.
44) Which of the following is the objective function minimize total risk?
A) 11.87 X1 + 12.62 X2 + 13.72 .X3 + 3.37 X4 + 8.4 X5 + 6.91 X6
B) 7.23 X1 + 8.42 X2 + 6.66 .X3 + 2.72 X4 + 8.89 X5 + 3.5 X6
C) 11.87 X1 + 12.62 X2 + 13.72 .X3 + 3.37 X4 + 8.4 X5 + 6.91 X6 / 750,000
D) 7.23 X1 + 8.42 X2 + 6.66 .X3 + 2.72 X4 + 8.89 X5 + 3.5 X6 ≥ 6%
Answer: C
Diff: 2
Blooms: Apply
Topic: Applications of Linear Optimization
LO1: Formulate and solve linear optimization models for a variety of applications in business.
45) Which of the following is the constraint for the weighted return?
A) X1 + X2 + X3 + X4 + X5 + X6 = 750,000
B) 7.23 X1 + 8.42 X2 + 6.66 .X3 + 2.72 X4 + 8.89 X5 + 3.5 X6 ≥ 6.00
C) 7.23 X1 + 8.42 X2 + 6.66 .X3 + 2.72 X4 + 8.89 X5 + 3.5 X6 / 750,000 ≥ 6.00
D) 7.23 X1 + 8.42 X2 + 6.66 .X3 + 2.72 X4 + 8.89 X5 + 3.5 X6 / 750,000

Answer: C
Diff: 2
Blooms: Apply
46) Which of the following is the constraint for investment in low-priced and multinational
funds?
A) X1 + X2 ≥ 0.35(750,000)
B) ≥ 0.35(750,000)
C) X1 + X2 + X3 + X4 + X5 + X6 ≥ 0.35(750,000)
D) ≥ 0.35
Answer: A
Diff: 2
Blooms: Apply
47) Which of the following describes the constraint on the mid-cap fund?
A) X3 ≥ 0.35(750,000)
B) X3 ≥ 80,000
C) X3 ≥ 0.35(80,000)
D) X3 ≤ 670,000
Answer: B
Diff: 2
Blooms: Apply
The Riviera Transport Company (RTC) produces car accessories at two plants: Dallas and
Atlanta. They ship them to major distribution centers in Houston, San Jose, Jacksonville, and
Memphis. The accounting, production, and marketing departments have provided the
information in the table below, which shows the unit cost of shipping between any plant and
distribution center, plant capacities over the next planning period, and distribution center
demands. RTC's supply chain manager faces the problem of determining how much to ship
between each plant and distribution center to minimize the total transportation cost, not exceed
available capacity, and meet customer demand.

Assume Xij = amount shipped from plant i to distribution center j, where i = 1 represents Dallas,
i = 2 represents Atlanta, j = 1 represents Houston, and so on.
Transportation
Model
Data
Distribution
Center
Plant Houston San Jose Jacksonville Memphis Capacity
Dallas 13.00 15.25 10.99 18.48 1250
Atlanta 10.75 15.16 9.65 18.50 750
Demand 175 325 480 950
Answer the following question(s) using a linear optimization model.
48) Which of the following is the objective function for cost minimization?
A) minimize cost = 13 X11 +15.25 X12 +10.99 X13 +18.48 X14 / 10.75 X21 +15.16 X22 +9.65
X23 +18.5 X24
B) minimize cost = 13 X11 +15.25 X12 +10.99 X13 +18.48 X14 + 10.75 X21 +15.16 X22 +9.65
X23 +18.5 X24
C) minimize cost = 13 X11 +15.25 X12 +10.99 X13 +18.48 X14 - 10.75 X21 +15.16 X22 +9.65
X23 +18.5 X24
D) minimize cost = (13 X11 +15.25 X12 +10.99 X13 +18.48 X14 - 10.75 X21 +15.16 X22 +9.65
X23 +18.5 X24 )(1,250 / 750)
Answer: B
Diff: 2
Blooms: Apply
49) Which of the following is the constraint for total amount shipped from Dallas?
A) X11 + X12 + X13 + X14 ≤ 1,250
B) X21 + X22 + X23 + X24 ≤ 1,250
C) X21 + X22 + X23 + X24 ≤ 750
D) X11 + X12 + X13 + X14 - X21 + X22 + X23 + X24 ≤ 850
Answer: A
Diff: 2
Blooms: Apply

50) Which of the following is the constraint for total amount shipped from Atlanta?
A) X11 + X12 + X13 + X14 - X21 + X22 + X23 + X24 ≤ 850
B) X21 + X22 + X23 + X24 ≤ 750
C) X21 + X22 + X23 + X24 ≤ 1250
D) X11 + X12 + X13 + X14 ≤ 1250
Answer: B
Diff: 2
Blooms: Apply
51) Which of the following gives the constraint for the demand met at a distribution center?
A) X11 + X21 = 1,250
B) X13 + X23 ≥ 210
C) X13 + X23 = 770
D) X13 + X23 = 480
Answer: D
Diff: 2
Blooms: Apply
52) Which of the following is the constraint of nonnegativity for all values of i and j?
A) 13 X11 +15.25 X12 +10.99 X13 +18.48 X14 / 10.75 X21 +15.16 X22 + 9.65 X23 +18.5 X24 ≤
0
B) Xij ≥ 0, for all i and j
C) Xij ≤ 0, for all i and j
D)
Answer: B
Diff: 1
Blooms: Apply
53) Keychain Publishing is planning to release two books, simultaneously, by the same author.
One is a fictional book, while the other is the author's autobiography. The details of its cost,
production, and demand are given in the table below.

Keychain Publishing
Data
Fictional Autobiography
Cost/book $1.75 $1.50
Price/book $11.49 $9.86
Base demand 50,000 65,000

Increase/$1 Adv. 25 35
Min. percent
requirement 35%
Max. percent limitation 70%
Total Budget $150,000
Keychain Publishing has $150,000 available to bind books and advertise them with an objective
of maximizing profit contribution. Provide the objective function for maximizing profits, along
with its constraints.
Answer: To formulate this model, let

F = number of the fictional copies produced
B = number of the autobiographical copies produced
Af = dollar amount spent on the fictional copies
Ab = dollar amount spent on the autobiographical copies
The objective is to maximize the profits, which is, revenue minus costs.
= (11.49F + 9.86B) - (1.75F + 1.5B + Af + Ab)
= 9.74F + 8.36B -Af - Ab
The constraints are defined as follows:
1. Budget cannot be exceeded:

1.75F + 1.5B + Af + Ab ≤ $150,000
2. Contractual requirements must be met:

.35 ≤ F / (F + B) ≤ 0.7
3. Production must not exceed demand:

F ≤ 50,000 + 25Af
B ≤ 65,000 + 35Ab

4. Nonnegativity:
All variables F, B, Af, Ab ≥ 0
Diff: 3
Blooms: Apply
Topic: A Production/Marketing Allocation Model
LO1: Build linear optimization models for a variety of applications.
54) The mathematical form Y ≤ 450 would be considered as representing a simple bounds
constraint.
Answer: TRUE
Diff: 1
Blooms: Remember
55) Linear optimization cannot be used on problems having multiple time periods.
Answer: FALSE
Diff: 1
Blooms: Understand
56) List out the different types of constraints that help model formulation.
Answer: The most challenging aspect of model formulation is identifying constraints.
Understanding the different types of constraints can help in proper identification and modeling.
Constraints generally fall into one of the following categories:
• Simple Bounds
• Limitations
• Requirements
• Proportional Relationships
• Balance Constraints
Diff: 1
Blooms: Remember
Letherin Hides is a company that makes boots specifically targeting college students. Forecasts
of sales for the next year are 200 in the summer, 450 in the autumn, and 500 in the winter.
Accessories that are used on the boots are purchased from a supplier for $31.66. The cost of
capital is estimated to be 24% per year (or 6% per quarter); thus, the holding cost per item is

0.06($31.66) = $1.9 per quarter (rounded figure). Letherin Hides hires freelance art designers at
part-time to craft designs during the summer, and they earn $6 per hour. In the autumn, labor is
more difficult to keep, and the owner must pay $6.5 per hour to retain qualified help. Because of
the high demand for part-time help during the winter holiday season, labor rates are higher in the
winter, and workers earn $7.75 per hour. Each boot design takes 2 hours to complete. How
should production be planned over the three quarters to minimize the combined production and
inventory holding costs?
The table below provides information on Letherin Hides boot design cost and production.
Letherin Hides
Data
Summer Autumn Winter

Unit Production
Cost 12 13 15.5
Unit Inventory
Holding Cost 1.9 1.9 1.9
Demand 200 450 500
Use a linear optimization model based on the data to answer the following questions.
57) According to the linear optimization model, what is the total amount to be produced in
summer?
A) 200
B) 100
C) 550
D) 0
Answer: A
Diff: 2
Blooms: Apply
58) According to the linear optimization model, what is the inventory held at the end of summer?
A) 450
B) 0
C) 200
D) 550
Answer: B
Diff: 2
Blooms: Apply


59) According to the linear optimization model, what is the inventory held at the end of autumn?
A) 0
B) 200
C) 950
D) 500
Answer: D
Diff: 2
Blooms: Apply
60) According to the linear optimization model, what is the net production for autumn?
A) 200
B) 500
C) 450
D) 50
Answer: C
Diff: 2
Blooms: Apply
61) According to the linear optimization model, what is the net production for winter?
A) 0
B) 950
C) 200
D) 500
Answer: D
Diff: 2
Blooms: Apply

62) According to the linear optimization model, what is the total cost incurred by Letherin Hides
for the combined seasons?
A) $17,885
B) $15,605
C) $15,700
D) $18,700
Answer: C
Diff: 2
Blooms: Apply

Chapter 14: Integer and Nonlinear Optimization Models
1) is the parameter that specifies when the Solver algorithm will terminate an
optimization process with integer constraints.
A) Mutation Rate
B) Population Size
C) Integer Tolerance
D) Convergence
Answer: C
Diff: 1
Blooms: Remember
Topic: Integer Linear Optimization Models
LO1: Incorporate integer variables into Solver models.
2) What should be the value of Integer Tolerance in order to find the guaranteed optimal integer
solution?
A) -1
B) 0
C) 0.5
D) 1
Answer: B
Diff: 1
Blooms: Remember
Stone Age Surfboards is a small manufacturer of two types of popular low-tide surfboards, the
Graystone and the Lava models. The manufacturing process consists of two departments:
fabrication and finishing. The fabrication department has 8 skilled workers, each of whom works
9.25 hours per day. The finishing department has 5 workers, each of whom works a 6-hour shift
per day. Each pair of Graystone surfboards requires 2.5 labor hours in the fabrication department
and 2 labor hours in finishing. The Lava model requires 4.2 labor-hours in fabrication and 3.6
labor-hours in finishing. The company operates 6 days a week. It makes a per unit profit of $40
on the Graystone model and $60 on the Lava model. The company anticipates selling at least
twice as many Lava models as Graystone models.
Use the spreadsheet below for Stone Age Surfboards to answer the following question(s) using
integer constraints on variables in the optimization models using the standard Solver.

260
Chapter 14: Integer and Nonlinear Optimization Business Analytics, 3e 261
A B C D
2
3 Data
4 Product
5 Department Graystone Lava Limitations (hours)
6 Fabrication 2.5 4.2 74
7 Finishing 2 3.6 30
8
9 Profit/Unit $40.00 $60.00
10
11
12 Model
13 Graystone Lava
14 Quantity Produced Hours Used
15 Fabrication
16 Finishing
17
18 Excess Lava
19 Market Mixture
20
21 Total Profit
3) Which of the following constraints does Solver use?

A) $B$14:$C$14 = integer
B) $D$15 > = $D$6
C) $D$16 > = $D$7
D) $D$19 < = 0
Answer: A
Diff: 2
Blooms: Apply
4) What is the quantity of Graystone surfboards produced?

A) 2
B) 5
C) 7

262 Chapter 14: Integer and Nonlinear Optimization Business Analytics, 3e
D) 10
Answer: A
Diff: 2
Blooms: Apply
5) What is the quantity of Lava surfboards produced?

A) 2
B) 5
C) 7
D) 10
Answer: C
Diff: 1
Blooms: Apply

A) 39.6
B) 34.4
C) 29.2
D) 24.8
Answer: B
Diff: 2
Blooms: Apply
A) 39.6
B) 34.4
C) 29.2
D) 24.8
Answer: C
Diff: 1
Blooms: Apply


A) $ 748.28
B) $ 687.46
C) $ 385.65
D) $ 500.00
Answer: D
Diff: 2
Blooms: Apply
Use the table below to answer the following question(s) using the standard Solver.
A company makes standard 130-inch-wide rolls of thin sheet metal and slits them into smaller
rolls to meet customer orders for widths of 10, 14, and 25 inches. Suppose that the company has
proposed the following cutting patterns:
A B C D E
1 Cutting-Stock Problem
2
3 Data
4 Pattern 10-in rolls 14 in. rolls 25-in. rolls Scrap
5 1 0 8 0 10
6 2 0 2 3 10
7 3 3 0 3 4
8 4 10 0 0 10
9 5 3 2 2 4
10 6 8 2 0 4
Demands for the coming week are 950 10-inch rolls, 725 14-inch roles, and 640 25-inch rolls.
Develop a model using the Analytic Solver Platform that will determine how many 130-inch
rolls to cut into each of the six patterns in order to meet demand and minimize scrap.
9) What is the total number of 10-inch rolls produced?

A) 940
B) 946
C) 950
D) 960
Answer: D
Diff: 2
Blooms: Apply



A) 721
B) 725
C) 728
D) 740
Answer: C
Diff: 1
Blooms: Apply

A) 630
B) 635
C) 640
D) 645
Answer: C
Diff: 1
Blooms: Apply
12) What is the total scrap produced?

A) 1,389
B) 1,390
C) 1,427
D) 1,445
Answer: B
Diff: 2
Blooms: Apply

Use the table below to answer the following question(s) using the standard Solver.
Coppell Services contracts with outsourcing partners to handle various customer service
functions. Based on a study of call volumes provided by one of the firm's partners, the minimum
number of staff needed for each hour of the day is as follows:
Hour Minimum Staff Required

8-9 6
9-10 10
10-11 12
11-noon 10
noon-1 8
1-2 16
2-3 15
3-4 20
4-5 15
Mr. Coppell hires 6 permanent employees and wants to staff the remaining requirements using
part-time employees who work 4-hour shifts (four consecutive hours starting as early as 8 A.M.
or as late as 1 P.M.).
13) How many part-time employees are present in the 8-9 time slot?
A) 4
B) 6
C) 9
D) 14
Answer: A
Diff: 2
Blooms: Apply
LO1: Develop integer optimization models for practical applications such as workforce
scheduling and location.
14) How many excess employees are present in the noon-1 time slot?
A) 2
B) 4
C) 5
D) 6
Answer: C
Diff: 2
Blooms: Apply

15) How many part-time employees are present in the 3-4 time slot?
A) 16
B) 14
C) 9
D) 7
Answer: B
Diff: 1
Blooms: Apply
16) How many excess employees are present in the 4-5 time slot?
A) 0
B) 2
C) 4
D) 6
Answer: A
Diff: 1
Blooms: Apply
17) What is the minimum number of total part-time employees needed across all the 4-hour
shifts to ensure meeting the staffing requirements?
A) 16
B) 28
C) 24
D) 20
Answer: D
Diff: 3
Blooms: Apply

18) Which of the following best defines a binary variable?

A) It is a general integer variable that is restricted to being between -1 and 1.
B) It is a general integer variable that is restricted to being a multiple of 2.
C) It is a general integer variable that is restricted to being between 0 and 1.
D) It is a general integer variable that is restricted to being greater than 2.
Answer: C
Diff: 1
Blooms: Remember
LO1: Formulate and solve optimization models with binary variables and logical constraints.
Use the table below to answer the following question(s) by invoking the binary constraints on the
variables using the standard Solver.
Below is the spreadsheet for a project selection model:
A B C D E F G
Project Selection
1 Model
2
3 Data
Available
4 Project 1 Project 2 Project 3 Project 4 Project 5 Resources
Expected Return
5 (NPV) $160,000 $200,000 $125,000 $150,000 $225,000
Cash
6 requirements $45,000 $70,000 $28,000 $52,000 $65,000 $175,000
Personnel
7 requirements 7 4 2 6 4 10
8
9 Model
10
Project selection
11 decisions
12 Cash Used
13 Personnel Used
14 Return
19) Which of the following cells is set as the objective cell in Solver?
A) $G$12
B) $F$14
C) $G$14
D) $B$12
Answer: C
Diff: 2

Blooms: Apply
Topic: Models with Binary Variables
20) What is the amount of cash used for Project 2?

A) $ 105,000
B) $ 25,000
C) $ 115,000
D) $ 70,000
Answer: D
Diff: 2
Blooms: Apply
21) What is the amount of cash used for Project 5?

A) $ 65,000
B) $ 117,000
C) $ 13,000
D) $ 110,000
Answer: A
Diff: 1
Blooms: Apply
22) What is the total amount of cash used for all five projects?
A) $ 175,000
B) $ 163,000
C) $ 215,000
D) $ 260,000
Answer: B
Diff: 2
Blooms: Apply

23) What is the amount of personnel used for Project 2?

A) 3
B) 4
C) 6
D) 11
Answer: B
Diff: 2
Blooms: Apply
24) What is the total amount of personnel used for all five projects?
A) 23
B) 17
C) 10
D) 4
Answer: C
Diff: 2
Blooms: Apply
25) What is the return obtained from Project 3?

A) $ 200,000
B) $ 125,000
C) $ 275,000
D) $ 225,000
Answer: B
Diff: 2
Blooms: Apply
26) What is the return obtained from Project 5?

A) $ 200,000
B) $ 125,000
C) $ 275,000
D) $ 225,000
Answer: D
Diff: 2

Blooms: Apply
27) What is the total return obtained from all five projects?
A) $ 860,000
B) $ 550,000
C) $ 700,000
D) $ 395,000
Answer: B
Diff: 2
Blooms: Apply
28) Decision variables that are forced to be integers are called general integer variables.
Answer: TRUE
Diff: 1
Blooms: Remember
LO1: Recognize when to use integer variables in optimization models.
29) If the Integer Tolerance is set to 0.01, the Solver will stop if it finds an integer solution that is
within 10% of the optimal solution.
Answer: FALSE
Diff: 1
Blooms: Understand
30) Mathematically, a binary variable x can be represented as x > 2 and integer.

Answer: FALSE
Diff: 1
Blooms: Remember
31) To invoke the binary constraints on the variables, the option bin is chosen from the
dropdown box in the Add Constraint dialog.

Answer: TRUE
Diff: 1
Blooms: Remember
32) Explain the method of Integer Linear Optimization Models.

Answer: Decision variables that are forced to be integers are called general integer variables. If
the linear optimization model is solved without the integer restrictions and the optimal solution
happens to have all integer values, then it clearly would have solved the integer model. However,
this is generally not the case. The algorithm used to solve integer optimization models begins by
solving the LP relaxation and proceeds to enforce the integer restrictions using a systematic
research process that involves solving a series of modified linear optimization problems.
Diff: 1
Blooms: Remember
LO1: Recognize when to use integer variables in optimization models.
33) What is the importance of Integer Tolerance in Solver?

Answer: When using Solver, it is important to set a parameter called the Integer Tolerance. This
value specifies when the Solver algorithm will terminate. By default, the Integer Tolerance is set
to 0.05 within Solver. This means that Solver will stop if it finds an integer solution that is within
5% of the optimal solution. To find the guaranteed optimal integer solution, Integer Tolerance
must be set to 0. To do this, click the Options button in the Solver Parameters dialog and change
the value of Integer Optimality (%) to 0.
Diff: 1
Blooms: Remember
34) What is the importance of binary variables in integer optimization models?

Answer: Many optimization models require binary variables, which are variables that are
restricted to being either 0 or 1. Binary variables are used to model logical decisions in
optimization models. They can be used to model whether to place (x=1) or not to place (x=0) a
facility at a certain location, whether or not to run a production line, or whether or not to invest
in a certain stock.
Diff: 1
Blooms: Remember

35) Explain the implementation of a project-selection model.

Answer:
A B C D E F G
1 Project Selection Model
2
3 Data
4 Project 1 Project 2 Project 3 Project 4 Project 5 Available
Expected
Return
5 (NPV) $160,000 $200,000 $125,000 $150,000 $225,000 Resources
Cash
6 requirements $45,000 $70,000 $28,000 $52,000 $65,000 $175,000
Personnel
7 requirements 7 4 2 6 4 10
8
9 Model
10
Project
selection
11 decisions
12 Cash Used B6*B11 C6*C11 D6*D11 E6*E11 F6*F11 SUM(B12:F12)
Personnel
13 Used B7*B11 C7*C11 D7*D11 E7*E11 F7*F11 SUM(B13:F13)
14 Return B5*B11 C5*C11 D5*D11 E5*E11 F5*F11 SUM(B14:F14)
The decision variables are defined in cells B11:F11. By multiplying these values by the data for
each project in rows 5-7, the total return, cash used, and personnel used for the projects that are
selected, can be computed in rows 12-14. The objective function is computed in cell G14 as the
sum of the returns for the selected projects. Similarly, the amounts of cash and personnel used
are also summed for the projects selected, representing the constraint functions in cells G12 and
G13. The binary constraints are invoked in the Solver.
Diff: 3
Blooms: Apply

Bolton Computer's
Laptop
Pricing Decision
Inputs
Price
Model
Sales -3.85 × price + 1150.9
Outputs
Total revenue sales × price
36) Bolton Computers are planning to release a new line of low-end laptops. Using Excel's
Solver, develop a nonlinear model to calculate the optimal price for the laptops, given that sales
= -3.85 × price + 1150.9.
A) 342.40
B) 380.90
C) 719.70
D) 149.47
Answer: D
Diff: 2
Blooms: Apply
Topic: Nonlinear Optimization Models
LO1: Develop and solve nonlinear optimization models for different applications.
37) According to the nonlinear model, which of the following is the expected sales figure based
on the computed price?
A) 149.47
B) 719.7
C) 575.45
D) 500
Answer: C
Diff: 2
Blooms: Apply

38) According to the nonlinear model, which of the following is the total revenue expected from
the sales?
A) 22,340.91
B) 86,011.09
C) 107,571.78
D) 74,733.77
Answer: B
Diff: 2
Blooms: Apply
Use the table below to create a nonlinear model based on the table to answer the following
question(s).
The Atlas Movies Theater is planning to reprice their ticket rates to maximize revenues. They
have three classes of tickets: Classic, Silver, and Gold. The table below provides information on
the average ticket sales, revenue and price elasticity on demand. They have a total seating
capacity of 300. The table also provides the price range within which they plan to reduce their
ticket rates.
Atlas Movie
Theater
Ticketing
Data
Ticket Class Current Average Elasticity Total Price Range

Rate Daily Seating
Sold Capacity
Classic $8.45 150 -1.5 300 $6.50 $7.50
Silver $13.25 80 -2 $11.50 $12.50
Gold $17.50 30 -1 $15.50 $16.50
39) According to the nonlinear model, what is the new price for Classic tickets?
A) $7.50
B) $12.45
C) $6.50
D) $8.20
Answer: A
Diff: 2
Blooms: Apply


40) According to the nonlinear model, what is the new price for Silver tickets?
A) $7.40
B) $12.17
C) $11.50
D) $12.50
Answer: B
Diff: 1
Blooms: Apply
41) According to the nonlinear model, what is the new price for Gold tickets?
A) $16.50
B) $15.50
C) $16
D) $16.11
Answer: A
Diff: 1
Blooms: Apply
42) According to the nonlinear model, which of the following is the projected sales figure for
Classic tickets at the new price?
A) 32
B) 90
C) 175
D) 202
Answer: C
Diff: 2
Blooms: Apply
Silver tickets at the new price?

A) 93
B) 178
C) 202
D) 101
Answer: A
Diff: 2
Blooms: Apply
Gold tickets at the new price?
A) 32
B) 90
C) 33
D) 178
Answer: A
Diff: 2
Blooms: Apply
45) According to the nonlinear model, which of the following is the projected revenue figure for
Classic tickets based on its new price?
A) $1,314.72
B) $1,116.03
C) $521.68
D) $1,312.52
Answer: A
Diff: 2
Blooms: Apply
Silver tickets based on its new price?
A) $1,163.02
B) $1,132.08
C) $1,224.63
D) $1,316.92

Answer: B
Diff: 2
Blooms: Apply
Gold tickets based on its new price?
A) $432.93
B) $1,316.92
C) $1,116.03
D) $523.29
Answer: D
Diff: 2
Blooms: Apply
48) According to the nonlinear model, which of the following is the total projected revenue for
the new sales figures?
A) $1,637.72
B) $2,970.09
C) $1,316.92
D) $2,865.89
Answer: B
Diff: 2
Blooms: Apply
49) Which of the following is true of the nonlinear model created for the Atlas movie ticket
repricing scenario?
A) The projected revenue for the Gold class is infeasible within the price range provided.
B) The projected value for most tickets sold is for the Silver class.
C) The total projected tickets sold exceed the total seating capacity.
D) The projected revenue is lowest for the Gold tickets.
Answer: D
Diff: 3
Blooms: Understand


50) Which of the following is the rectilinear distance between the points A(13,15) and B(10,12)?
A) 4
B) 25
C) 6
D) 10
Answer: C
Diff: 2
Blooms: Apply
Shirley Templeton is a real estate agent for Paralol Realty. Shirley is given the responsibility to
manage potential customers for 5 of the Realty’s bungalows. These 5 bungalows are situated in
close proximity. In order to make traveling easier, Shirley decides to move to a location closer to
the 5 bungalows. The table below gives the location (X and Y coordinates) of the 5 bungalows
along with the number of trips she would have to make to each bungalow. Create a nonlinear
model based on the data given in the table below noting that the objective is to reduce the
weighted distance between Shirley’s accommodation and the 5 bungalows.
Bungalow Location
Data
Location X-coordinate Y-coordinate Trips/Month
Bungalow 1 0 0 6
Bungalow 2 25 100 30
Bungalow 3 20 75 15
Bungalow 4 90 80 28
Bungalow 5 60 100 10
51) According to the model, what is the X-coordinate for the location of Shirley’s new
accommodation?
A) 54.62
B) 36.53
C) 25
D) 23.12
Answer: B
Diff: 2
Blooms: Apply


52) According to the model, what is the Y-coordinate for the location of Shirley's new
accommodation?
A) 91.16
’) 25.08
C) 98.21
D) 54.62
Answer: A
Diff: 2
Blooms: Apply
53) According to the model, what is the distance between Shirley's new accommodation and
Bungalow 1?
A) 36.53
B) 14.53
C) 98.21
D) 23.12
Answer: C
Diff: 2
Blooms: Apply
Bungalow 2?
A) 91.16
B) 23.12
C) 98.21
D) 14.53
Answer: D
Diff: 2
Blooms: Apply

Bungalow 3?
A) 54.62
B) 25.08
C) 36.53
D) 23.12
Answer: D
Diff: 2
Blooms: Apply
56) According to the model, what is the distance between Shirley’s new accommodation and
Bungalow 4?
A) 14.53
B) 250.78
C) 54.62
D) 98.21
Answer: C
Diff: 2
Blooms: Apply
Bungalow 5?
A) 54.62
B) 25.08
C) 14.53
D) 91.16
Answer:’ B
Diff: 2
Blooms: Apply
58) According to the model, what is the weighted distance between Shirley’s new
accommodation and Bungalow 1?
A) 589.25
B) 435.89

C) 346.77
D) 3152.08
Answer: A
Diff: 2
Blooms: Apply
Topic: Non-Smooth Optimization
59) According to the model, what is the weighted distance between Shirley's
new accommodation and Bungalow 2?
A) 435.89
B) 250.78
C) 1529.39
D) 589.25
Answer: A
Diff: 2
Blooms: Apply
A) 3152.08
B) 1529.39
C) 346.77
D) 250.78
Answer: C
Diff: 2
Blooms: Apply
A) 589.25
B) 346.77
C) 1529.39
D) 3152.08
Answer: C
Diff: 2

Blooms: Apply
A) 435.89
B) 1529.39
C) 589.25
D) 250.78
Answer: D
Diff: 2
Blooms: Apply
63) According to the model, what is the total weighted distance that Shirley would travel
between the bungalows?
A) 4151.29
B) 1529.39
C) 3152.08
D) 4305.30
Answer: C
Diff: 2
Blooms: Apply
64) According to the model, which of the following bungalows is Shirley's new accommodation
closest to?
A) Bungalow 1
B) Bungalow 5
C) Bungalow 2
D) Bungalow 4
Answer: C
Diff: 2
Blooms: Understand

65) Given that Q = order quantity, D = annual demand, C = unit cost of the item, C0 = cost per
order placed, i = inventory carrying charge per unit, which of the following represents the
holding cost per unit?
A) D/Q
B) iC
C) (D/Q)C0
D) iCQ/2
Answer: B
Diff: 2
Blooms: Remember
66) Which of the following is the ideal next step if you get the message "Solver has converged to
the current solution./All constraints are satisfied," when using Solver for nonlinear optimization
models?
A) Accept the values, but run Solver again from the current solution.
B) Do not accept the Solver values and re-run Solver with the starting values.
C) Accept the values and run simulations with different values.
D) Accept the values, and then tweak the values, and re-run Solver on tweaked values.
Answer: A
Diff: 2
Blooms: Understand
Jonathan Reese is considering three stocks in which to invest with a fixed budget. The table
below provides information on Jonathan's expected returns for each stock. The table also
provides information, collected from market researchers, on the variance-covariance matrix of
the individual stocks. He expects a total return of at least 10%.

Reese's Stock
Investment
Plan
Data
Expected Variance-Covariance Matrix
Return Stock 1 Stock 2 Stock 3
Stock 1 10% Stock 1 0.021 0.018 -0.003
Stock 2 11% Stock 2 0.018 0.070 0.006
Stock 3 9% Stock 3 -0.003 0.006 0.003
Target
Return 10%
Develop a Nonlinear Optimization Models model to find the optimal allocation of the budget to
each stock, and variance calculations for squared terms and cross-products based on the
variance-covariance matrix.
67) According to the model, what percentage of the budget should be allocated to Stock 1?
A) 10%
B) 25%
C) 50%
D) 40%
Answer: C
Diff: 2
Blooms: Apply
A) 90%
B) 25%
C) 50%
D) 75%
Answer: B
Diff: 1
Blooms: Apply

A) 40%
B) 20%
C) 25%
D) 75%
Answer: C
Diff: 1
Blooms: Apply
70) According to the model, what is the squared term value for Stock 1 variance?
A) 0.00065
B) 0.00535
C) 0.01132
D) 0.00283
Answer: B
Diff: 2
Blooms: Apply
A) 0.00236
B) -0.00031
C) 0.00080
D) 0.00430
Answer: D
Diff: 2
Blooms: Apply
A) 0.00018
B) 0.00080
C) 0.00096
D) 0.00194
Answer: A
Diff: 2

Blooms: Apply
73) According to the model, what is the cross-product value for Stock 1 variance?
A) 0.00176
B) 0.00450
C) -0.00047
D) 0.00194
Answer: B
Diff: 2
Blooms: Apply
A) 0.00080
B) -0.00080
C) -0.00075
D) 0.01132
Answer: C
Diff: 2
Blooms: Apply
A) 0.00049
B) 0.00283
C) -0.00047
D) 0.00074
Answer: D
Diff: 2
Blooms: Apply

76) According to the model, what is the expected total return on all stocks?
A) 18%
B) 10%
C) 11%
D) 12%
Answer: B
Diff: 2
Blooms: Apply
77) According to the model, what is the expected variance of the resulting portfolio?
A) 0.014
B) 0.010
C) 0.009
D) 0.012
Answer: A
Diff: 2
Blooms: Apply
Pickson Luthiers Corporation is studying where to locate a phone charging point on the factory
floor. The locations of five production cells are expressed as X- and Y-coordinates on a
rectangular grid of the factory layout. The daily demand for the charging point (measured as the
number of trips to the charging point) at each production cell is also known. Because of the
nature of the equipment layout in the factory and for safety reasons, workers must travel along
marked horizontal and vertical aisles to access the charger. Thus, the distance from a cell to the
charger is measured as rectilinear distance.
The table below provides the relevant information.
Pickson Luthiers
Corporation Phone Recharging Points
Data
Cell X-coordinate Y-coordinate Demand

Measurements 2 5 27
Paint 1 3 12
Electricals 4 2 25

Testing 3.5 5 5
Packaging 3 3 7
Maximum 4 5
The optimal location should minimize the total weighted distance between the charging point
and all production cells, where the weights are the daily number of trips to the phone charging
point.
Create a nonsmooth optimization model, based on the data, to answer the following questions.
(Hint: Choose the closest answers.)
78) According to the model, which of the following is the X-coordinate for the phone charger
location?
A) 2.00
B) 3.00
C) 3.50
D) 4.00
Answer: A
Diff: 2
Blooms: Apply
79) According to the model, which of the following is the Y-coordinate for the phone charger
location?
A) 1.50
B) 1.00
C) 3.00
D) 5.00
Answer: C
Diff: 1
Blooms: Apply
80) According to the model, which of the following is the weighted distance between the phone
charger and Measurements cell?
A) 12.00
B) 75.00
C) 7.00
D) 54.00

Answer: D
Diff: 2
Blooms: Apply
charger and Paint cell?
A) 36.00
B) 12.00
C) 24.00
D) 0
Answer: B
Diff: 2
Blooms: Apply
charger and Electricals cell?
A) 75.00
B) 125.00
C) 100.00
D) 112.50
Answer: A
Diff: 2
Blooms: Apply
charger and Testing cell?
A) 7.00
B) 17.50
C) 22.50
D) 27.50
Answer: B
Diff: 2
Blooms: Apply


charger and Packaging cell?
A) 10.50
B) 0
C) 7.00
D) 14.00
Answer: C
Diff: 2
Blooms: Apply
85) According to the model, what is the total weighted distance between the 5 production cells
and the phone charger?
A) 253.50
B) 113.00
C) 172.50
D) 165.50
Answer: D
Diff: 2
Blooms: Apply
86) According to the model, which of the following production cells covers the most distance
according to its demand when using the phone charger?
A) Measurements
B) Paint
C) Electricals
D) Testing
Answer: C
Diff: 2
Blooms: Understand

87) Jonathan Reese is considering three stocks in which to invest with a fixed budget. The table
below provides information on Jonathan's expected returns for each stock. The table also
provides information, collected from market researchers, on the variance-covariance matrix of
the individual stocks. He expects a total return of at least 10%.
Reese's Stock
Investment
Plan
Data
Expected Variance-Covariance Matrix
Return Stock 1 Stock 2 Stock 3
Stock 1 10% Stock 1 0.021 0.018 -0.003
Stock 2 11% Stock 2 0.018 0.070 0.006
Stock 3 9% Stock 3 -0.003 0.006 0.003
Target
Return 10%
Using the table above, provide the objective function for minimal variance, and the constraints
for creating an optimization model.
Answer: The model here is a Nonlinear Optimization Models model that seeks to minimize the
risk of a portfolio of stocks subject to a constraint on the portfolio's expected return.
From the above data, the objective function for minimal variance =
0.0212 + 0.070 + 0.003 + 2(0.018)x1x2 + 2(-0.003)x1x3 + 2(0.006)x2x3
where x1, x2, x3 are stock variables or the fractions of the portfolio to invest in stocks 1, 2, 3
respectively.
The constraints must first ensure that we invest 100% of our budget. Because the variables are
defined as fractions, we must have
x1 + x2 + x3 = 1
Second, the portfolio must have an expected return of at least 10%. The return on a portfolio is
simply the weighted sum of the returns of the stocks in the portfolio. This results in the constraint
10x1 + 11x2 + 9x3 ≥ 10
Finally, we cannot invest negative amounts:
x1, x2, x3 ≥ 0
Therefore, the complete model is
0.0212 + 0.070 + 0.003 + 2(0.018)x1x2 + 2(-0.003)x1x3 + 2(0.006)x2x3

x1 + x2 + x3 = 1
10x1 + 11x2 + 9x3 ≥ 10
x1, x2,, x3 ≥ 0

Diff: 2
Blooms: Understand
LO1: Recognize a Nonlinear Optimization Models model.
88) Pickson Luthiers Corporation is studying where to locate a phone charging point on the
factory floor. The locations of five production cells are expressed as X- and Y-coordinates on a
rectangular grid of the factory layout. The daily demand for the charging point (measured as the
number of trips to the charging point) at each production cell is also known. Because of the
nature of the equipment layout in the factory and for safety reasons, workers must travel along
marked horizontal and vertical aisles to access the charger. Thus, the distance from a cell to the
charger is measured as rectilinear distance.
The table below provides the relevant information.
Pickson Luthiers
Corporation Phone Recharging Points
Data
Cell X-coordinate Y-coordinate Demand

Measurements 2 5 27
Paint 1 3 12
Electricals 4 2 25
Testing 3.5 5 5
Packaging 3 3 7
Maximum 4 5
The optimal location should minimize the total weighted distance between the charging point
and all production cells, where the weights are the daily number of trips to the phone charging
point.
From the above table, provide the objective function for the best location of the charging point.
What kind of solution technique from Solver can be used to make the optimization model based
on the data?
Answer: To formulate an optimization model for the best location, define (X, Y) as the location
coordinates of the charging point. The weighted distance between the charging point and each
cell is expressed by the objective function minimize 27(|X-2|+|Y-5|) + 12(|X-1|+|Y-3|) + 25(|X-
4|+|Y-2|) + 5(|X-3.5|+|Y-5|) + 7(|X-3|+|Y-3|)
The absolute value functions used in this objective function create a non-smooth model. Thus,
Evolutionary Solver is the appropriate solution technique.
Diff: 1
Blooms: Knowledge
Topic: Non-smooth optimization
LO1: Identify non-smooth optimization models and when to use Evolutionary Solver.

89) Rectilinear distance is the measure of distance as a straight line between two points.
Answer: FALSE
Diff: 1
Blooms: Remember
90) The economic order quantity is the amount to order that minimizes the total cost of ordering
and holding.
Answer: TRUE
Diff: 1
Blooms: Remember
91) All Nonlinear Optimization Models models have nonlinear constraints.

Answer: FALSE
Diff: 1
Blooms: Remember
LO1: Recognize a Nonlinear Optimization Models model.
92) Absolute value functions, in optimization models, result in non-smooth functions.

Answer: TRUE
Diff: 1
Blooms: Remember
93) Explain how the Markowitz portfolio model is a Nonlinear Optimization Models model.
Answer: The Markowitz portfolio model is a classic Nonlinear Optimization Models model in
finance that seeks to minimize the risk of a portfolio of stocks subject to a constraint on the
portfolio's expected return. The decision variables are the percent of each stock to allocate to the
portfolio. In the Markowitz model, the objective function is to minimize the risk of the portfolio
as measured by its variance. Because stock prices are correlated with one another, the variance of
the portfolio must reflect not only variances of the stocks in the portfolio but also the covariance
between stocks.
Define xj to be the fraction of the portfolio to invest in stock j. The variance of a portfolio is the
weighted sum of the variances and covariances:
variance of portfolio = +

where
= the sample variance in the return of stock i
sy = the sample covariance between stocks i and j.
Diff: 1
Blooms: Remember
LO1: Recognize when to use nonlinear optimization models.
94) What is a job-sequencing problem? How can we find an optimal solution for such problems?
Answer: Job-sequencing problems involve finding an optimal sequence, or order, by which to
process a set of jobs. For any job sequence, we may compute the completion time for each job by
successively adding the processing times of that job and all that were completed before it. We
may then compare the completion times with the requested due dates to determine if the job is
either completed early or late. Lateness (Li) is the difference between the completion time (Ci)
and the due date (Di), which can either be positive or negative. Tardiness (Ti) is the amount of
time by which the completion time exceeds the due date; thus, tardiness is zero if a job is
completed early). Hence, for job i,
Li = Ci - Di
Ti = max {0, Li}
Researchers have shown that sequencing jobs in order of shortest processing time (SPT) first will
minimize the average completion time for all jobs. Sequencing by earliest due date (EDD) first
will minimize the maximum number of tardy jobs.
Diff: 3
Blooms: Understand
95) Explain the travelling salesperson problem with examples.

Answer: The traveling salesperson problem (TSP) can be described as follows. A salesperson
needs to visit each of n different cities and return home in the minimum total distance. A route
that visits each city exactly once and returns to the start is called a tour. Many practical problems
can be formulated as a TSP. For example, drivers for FedEx and UPS must deliver packages to
customers and return to their central location. Soft-drink vendors must collect money and
replenish bottles for a set of retail locations and then return to the warehouse. Other examples are
programming drilling machines to drill holes in circuit boards and picking orders within a
warehouse. In all these applications, the goal is to perform the task in minimum total time or
distance.
Diff: 1
Blooms: Understand

Chapter 15: Optimization Analytics
Qualis Investments is a private limited business that manages personal financial portfolios. The
company manages six mutual funds and has a client that has acquired $750,000 from an
inheritance. Characteristics of the funds are given in the table below.
Qualis Mutual Fund Data

Expected Annual
Return Risk Measure
1 Qualis Low-priced Stock Fund 7.23% 11.87
2 Qualis Multinational Fund 8.42% 12.62
3 Qualis Mid-cap Stock Fund 6.66% 13.72
4 Qualis Mortgage Fund 2.72% 3.37
5 Qualis Income Equity Fund 8.89% 8.4
6 Qualis Balanced Fund 3.50% 6.91
The company recommends that no more than $300,000 be invested in any individual fund, and
that at least $80,000 be invested in each of the mid-cap stock and mortgage fund. The total
amount invested in the low-priced and multinational funds are at least 35% of the total
investment. The client would like an average return of at least 6%. Assume that X1- X6
represent the dollar amounts invested in funds 1 through 6, respectively.
1) If the unit profit on Graystone surfboards is increased by $10, what is the total profit
generated?
A) $ 489.13
B) $ 521.74
C) $ 423.91
D) $ 554.35
Answer: D
Diff: 2
Blooms: Apply
LO1: Conduct what-if analysis for optimization models.
2) If the unit profit on Graystone surfboards is increased by $10, what is the Allowable Increase
for Lava surfboards?
A) 30.00
B) 85.00
C) 16.67
D) 58.75
Answer: A

295
296 Chapter 15: Optimization Analytics Business Analytics, 3e
Diff: 2
Blooms: Apply
3) If the unit profit on Graystone surfboards is increased by $10, what is the Allowable Decrease
for Lava surfboards?
A) 30.00
B) 85.00
C) 16.67
D) 58.75
Answer: B
Diff: 2
Blooms: Apply
4) If the unit profit on Graystone surfboards is increased by $10, what is the shadow price for the
finishing hours used?
A) $ 18.48
B) $ 17.39
C) $ 15.42
D) $ 14.15
Answer: A
Diff: 2
Blooms: Apply
5) If the unit profit on both Graystone and Lava surfboards is increased by $10, what is the total
profit generated?
A) $ 521.74
B) $ 505.43
C) $ 423.91
D) $ 619.57
Answer: D
Diff: 2
Blooms: Apply

Chapter 15: Optimization Analytics Business Analytics, 3e 297

6) If the unit profit on both Graystone and Lava surfboards is increased by $10, what is the
Allowable Decrease for Lava surfboards?
A) 95.00
B) 38.46
C) 20.00
D) 11.11
Answer: A
Diff: 2
Blooms: Apply
7) If the unit profit on both Graystone and Lava surfboards is increased by $10, what is the
shadow price for the finishing hours used?
A) -4.35
B) 8.33
C) 20.65
D) 32.46
Answer: C
Diff: 2
Blooms: Apply
8) Due to decreasing profits, if the production of Graystone surfboards is stopped, compute the
total profit the firm can earn.
A) $ 521.74
B) $ 489.13
C) $ 423.91
D) $ 500.00
Answer: D
Diff: 2
Blooms: Apply
9) The indicates how much the value of the objective function will change as the right-
hand side of a constraint is increased by 1.
A) objective coefficient

B) shadow price
C) binding constraint
D) reduced cost
Answer: B
Diff: 1
Blooms: Remember
Topic: What-If Analysis for Optimization Models
LO1: Interpret the Solver Sensitivity Report for both linear and nonlinear optimization models.
10) Whenever a constraint has positive slack, the shadow price is equal to one.
Answer: FALSE
Diff: 1
Blooms: Remember
11) What is the importance of Shadow Price in the Sensitivity Report?

Answer: The Constraints section of the Sensitivity Report lists the final value of the constraint
function (the left-hand side), a number called the shadow price, the original right-hand side value
of the constraint, and an Allowable Increase and Allowable Decrease. The Shadow Price tells
how much the value of the objective function will change as the right-hand side of a constraint is
increased by 1. Whenever a constraint has positive slack, the shadow price is zero. When a
constraint involves a limited resource, the shadow price represents the economic value of having
an additional unit of that resource.
Diff: 1
Blooms: Remember
Remington Textiles has a mill that produces three types of fabrics on a make-to-order basis. The
mill operates on a 24/7 basis. The key decision facing the plant manager is about the type of
loom needed to process each fabric during the coming 12 weeks to meet demands for the three
fabrics and not exceed the capacity of the looms in the mill. Two types of looms are used:
Jaquard and Northrop. Jaquard looms can be used to make all fabrics and are the only looms that
can weave certain fabrics, such as plaids. Demands, variable costs for each fabric, and
production rates on the looms are given in the table below. The mill has 10 Northrop looms and
2 Jaquard looms. Any fabrics that cannot be woven in the mill because of limited capacity will
be purchased from an external supplier, finished at the mill, and sold at the selling price. In
addition to determining which looms to use to process the fabrics, the manager also needs to
determine which fabrics to buy externally.

Remington
Textiles
Data
Jaquard Northrop
Demand Capacity Capacity Mill Cost Outsourcing
Fabric (yards) (yards/hour) (yards/hour) ($/yard) Cost ($/yard)
1 50,000 5.6 0 0.53 0.81
2 62,000 5.2 4.8 0.6 0.85
3 35,000 4.8 4.5 0.71 0.84
Answer the following questions using a linear optimization model.
12) According to the model, what is the total amount of Fabric 1 to be produced on Jaquard?
A) 50,000
B) 0
C) 27,420.8
D) 22,579.2
Answer: D
Diff: 2
Blooms: Apply
into the solutions.
13) According to the model, what is the total amount of Fabric 1 to be purchased?
A) 27,420.8
B) 50,000
C) 22,579.2
D) 32,595
Answer: A
Diff: 3
Blooms: Apply
into the solutions.
14) According to the model, what is the total amount of Fabric 2 to be produced with Northrop?
A) 0
B) 62,000
C) 20,160
D) 32,595

Answer: B
Diff: 2
Blooms: Apply
into the solutions.
A) 50,000
B) 62,000
C) 0
D) 2,405
Answer: C
Diff: 2
Blooms: Apply
into the solutions.
16) According to the model, what is the total amount of Fabric 3 to be produced with Northrop?
A) 0
B) 35,000
C) 2,405
D) 32,595
Answer: D
Diff: 2
Blooms: Apply
into the solutions.
A) 2,405
B) 0
C) 32,595
D) 35,000
Answer: A
Diff: 2
Blooms: Apply


into the solutions.
18) According to the model, what is the total cost incurred by Remington for producing the three
fabrics?
A) $96,540.47
B) $149,240.47
C) $96,227.82
D) $88,862.65
Answer: A
Diff: 2
Blooms: Apply
into the solutions.
19) From the Sensitivity Report, what cost reduction ($/hour) would make it feasible to purchase
some amount of Fabric 2 from the external supplier rather than just produce it?
A) $0.6
B) $0.25
C) $0.128
D) $1.1
Answer: C
Diff: 2
Blooms: Apply
into the solutions.
20) From the Sensitivity Report, which of the following would reduce the total cost by $1.568
for each additional hour of capacity for the Jaquard looms?
A) decreasing the Northrop loom cost per hour by $0.58
B) decreasing the Northrop loom capacity down by 534.4
C) increasing the Jaquard loom capacity up by 4896.5 hours
D) increasing the Jaquard loom capacity up by 4032 hours
Answer: C
Diff: 2
Blooms: Apply

into the solutions.
The Riviera Transport Company (RTC) produces car accessories at two plants: Dallas and
Atlanta. They ship them to major distribution centers in Houston, San Jose, Jacksonville, and
Memphis. The accounting, production, and marketing departments have provided the
information in the table below, which shows the unit cost of shipping between any plant and
distribution center, plant capacities over the next planning period, and distribution center
demands. RTC's supply chain manager faces the problem of determining how much to ship
between each plant and distribution center to minimize the total transportation cost, not exceed
available capacity, and meet customer demand.
Assume Xij = amount shipped from plant i to distribution center j, where i = 1 represents Dallas,
i = 2 represents Atlanta, j = 1 represents Houston, and so on.
Transportation
Model
Data
Distribution
Center
Plant Houston San Jose Jacksonville Memphis Capacity
Dallas 13.00 15.25 10.99 18.48 1250
Atlanta 10.75 15.16 9.65 18.50 750
Demand 175 325 480 950
Answer the following question(s) using a linear optimization model.
21) According to the transportation model, which of the following is the amount shipped from
Dallas to Houston?
A) 0
B) 175
C) 1,180
D) 750
Answer: A
Diff: 2
Blooms: Apply
into the solutions.

22) According to the transportation model, which of the following is the amount shipped from
Dallas to San Jose?
A) 0
B) 95
C) 230
D) 325
Answer: C
Diff: 1
Blooms: Apply
into the solutions.
23) According to the transportation model, what is the amount shipped from Atlanta to
Jacksonville?
A) 950
B) 480
C) 0
D) 95
Answer: B
Diff: 1
Blooms: Apply
into the solutions.
24) According to the transportation model, what is the amount shipped from Atlanta to
Memphis?
A) 480
B) 0
C) 230
D) 950
Answer: B
Diff: 1
Blooms: Apply
into the solutions.

25) According to the transportation model, what is the total shipment from Dallas?
A) 750
B) 1,180
C) 430
D) 950
Answer: B
Diff: 2
Blooms: Apply
into the solutions.
26) According to the transportation model, what is the total cost incurred by Riviera Transport
Company?
A) $29,016.95
B) $26,698.95
C) $20,331.35
D) $41,978.75
Answer: A
Diff: 2
Blooms: Apply
into the solutions.
27) According to the Sensitivity report on the model, by what price should the unit cost of
shipment reduce to make shipment from Dallas to Houston feasible?
A) $8.68
B) $2.16
C) $10.84
D) $3.41
Answer: B
Diff: 2
Blooms: Apply
into the solutions.
28) From the Sensitivity Report on the model, to which of the following cities can Atlanta not
ship to without reducing unit cost of production?

A) Houston
B) San Jose
C) Jacksonville
D) Memphis
Answer: D
Diff: 3
Blooms: Apply
into the solutions.
29) Based on the Sensitivity Report on the model, which of the following is the savings on a
reduction of demand of 2 units at Jacksonville?
A) $2.5
B) $1.25
C) $19.48
D) $16.98
Answer: C
Diff: 2
Blooms: Apply
into the solutions.
30) According to the Sensitivity Report, which of the following is true if the capacity at Atlanta
is increased by 230 units?
A) the total cost can be reduced by $.09 per unit
B) the total cost at Atlanta increases by $9
C) the total cost per unit will reduce by $.09 to Memphis
D) the shadow price at Atlanta will increase to $0.09
Answer: A
Diff: 2
Blooms: Apply
into the solutions.
31) Degeneracy does not impact the interpretation of sensitivity analysis information.
Answer: FALSE
Diff: 1

Blooms: Remember
into the solutions.
32) When interpreting sensitivity analysis information for changes in model parameters, all other
model parameters are held constant.
Answer: TRUE
Diff: 1
Blooms: Remember
LO1: Ensure that assumptions underlying the use of sensitivity information hold when
interpreting Solver reports.
33) In a sensitivity report, a solution is considered a(n) solution if the right-hand-side

value of any constraint has a zero Allowable Increase or Allowable Decrease.
A) algorithmic
B) unbounded
C) infeasible
D) degenerate
Answer: D
Diff: 1
Blooms: Remember
into the solutions.
Pickson Luthiers Corporation makes four models of electric guitars, ScarCT, Dela Mort, Warax,
and Invazen. Each guitar must flow through five departments, assembly, painting, sound testing,
inspection, and packaging. The table below shows the relevant data. Production rates are shown
in units/hour. (ScarCT is assembled elsewhere). Pickson wants to determine how many guitars to
make to maximize monthly profit.

Pickson Luthiers
Corporation
Data
Selling Variable
Guitar Model price/Unit cost/Unit Min Sales Max Sales
ScarCT 750.00 660.00 0 2500
Dela Mort 788.00 680.00 0 2000
Warax 800.00 700.00 100 1000
Invazen 850.00 800.00 80 500
Production rates Hours

(units/hour) ScarCT Dela Mort Warax Invazen Available
Assembly - 35 25 20 220
Painting 35 20 15 10 220
Sound Testing 20 10 20 18 220
Inspection 10 12 8 5 220
Packaging 9 10 5 8 220
Use a linear optimization model based on the data to answer the following question.
34) According to the linear optimization model, what would be the total time spent on inspecting
the Dela Mort models?
A) 158.33
B) 12.5
C) 85
D) 48
Answer: A
Diff: 2
Blooms: Apply
Topic: Models with Bounded Variables
into the solutions.
35) According to the linear optimization model, what would be the total time spent for sound
testing the Warax model?
A) 5
B) 4
C) 6
D) 10.5
Answer: A
Diff: 1
Blooms: Apply


into the solutions.
36) According to the linear optimization model, what would be the total time spent for
assembling the Invazen models?
A) 8
B) 4
C) 16
D) 10
Answer: B
Diff: 1
Blooms: Apply
into the solutions.
37) According to the linear optimization model, what would be the total time spent for packaging
the Invazen models?
A) 8
B) 16
C) 20
D) 10
Answer: D
Diff: 1
Blooms: Apply
into the solutions.
38) According to the linear optimization model, what is the total hours spent for painting all the
models?
A) 220
B) 94.94
C) 109.67
D) 199.44
Answer: C
Diff: 2
Blooms: Apply


into the solutions.
39) According to the linear optimization model, which of the following departments uses all the
time that it is allocated to finish its job?
A) assembly
B) painting
C) inspection
D) packaging
Answer: D
Diff: 1
Blooms: Apply
into the solutions.
40) According to the linear optimization model, what is the total number of ScarCTs produced?
A) 2500
B) 750
C) 0
D) 100
Answer: C
Diff: 2
Blooms: Apply
into the solutions.
41) According to the linear optimization model, what is the net profit per unit on Dela Mort?
A) $205,200
B) $108
C) $680
D) $90
Answer: B
Diff: 2
Blooms: Apply
into the solutions.

42) According to the linear optimization model, what is the total profit contribution by the
Invazen model?
A) $205,200
B) $20,000
C) $10,000
D) $4,000
Answer: D
Diff: 2
Blooms: Apply
into the solutions.
43) According to the linear optimization model, what is the total profit for the Pickson Luthiers
Corporation?
A) $10,000
B) $199,880
C) $205,200
D) $219,200
Answer: D
Diff: 2
Blooms: Apply
into the solutions.
44) According to the Sensitivity Report, by how much should the unit profit on ScarCT be
increased in order for its production to be feasible?
A) $30
B) $90
C) $60
D) $120
Answer: A
Diff: 2
Blooms: Apply
LO1: Understand and interpret the Solver Sensitivity Report for models that have bounded
variables.

45) What is degeneracy in linear optimization? Give an example.

Answer: Linear optimization solutions can exhibit degeneracy. A solution is a degenerate
solution if the right-hand-side value of any constraint has a zero Allowable Increase or
Allowable Decrease. For example, reduced costs and shadow prices may not be unique, and
objective function coefficients may have to be changed beyond their allowable increases or
decreases before the optimal solution will change.
Diff: 1
Blooms: Remember
into the solutions.
46) How does Solver handle simple lower bounds and upper bounds compared to ordinary
constraints?
Answer: Solver handles simple lower bounds (e.g., C ≥500) and upper bounds (e.g., D≤1,000)
quite differently from ordinary constraints in the Sensitivity report. In Solver, lower and upper
bounds are treated in a manner similar to nonnegativity constraints, which also do not appear
explicitly as constraints in the model. Solver does this to increase the efficiency of the solution
procedure used; for large models this can represent significant savings in computer-processing
time.
Diff: 1
Blooms: Remember
LO1: Understand and interpret the Solver Sensitivity Report for models that have bounded
variables.
47) How does Excel's Solver help interpret reduced cost as shadow price for bounded variables?
Answer: Interpreting reduced costs as shadow prices for bounded variables can be confusing.
Excel's Solver has a unique feature to make this easier. In the spreadsheet model, define auxiliary
variables–a new set of cells for any decision variables that have upper- or lower-bound
constraints by referencing, not copying, the original changing cells. Then in the Solver model,
use these auxiliary variable cells–not the changing variable cells as defined–to define the bound
constraints.
Diff: 1
Blooms: Remember
LO1: Use auxiliary variables to model bound constraints and obtain more complete sensitivity
information.
48) Give an account of balance constraints with some examples of verbal clues.
Answer: Balance constraints essentially state that input = output and ensure that the flow of
material or money is accounted for at locations or between time periods. Examples include
production in June plus any available inventory must equal June's demand plus inventory held to

July, the total amount shipped to a distribution center from all plants must equal the amount
shipped from the distribution center to all customers, or the total amount of money invested or
saved in March must equal the amount of money available at the end of February.
Diff: 1
Blooms: Remember
49) For nonlinear models, the Lagrange multipliers are only approximate indicators of shadow
prices.
Answer: TRUE
Diff: 1
Blooms: Remember
into the solutions.

Chapter 16: Decision Analysis
1) A(n) is a matrix whose rows correspond to decisions and whose columns

correspond to events.
A) decision tree model
B) payoff table
C) utility function table
D) scoring model
Answer: B
Diff: 1
Blooms: Remember
Topic: Formulating Decision Problems
LO1: Construct a payoff table for a decision situation.
Below is a payoff table that lists four mortgage options:
Outcome
Decision Rates Rise Rates Stable Rates Fall
1-year ARM $66,645 $43,650 $38,560
3-year ARM $62,857 $47,698 $42,726
5-year ARM $55,895 $50,894 $48,134
30-year fixed $52,276 $52,276 $52,276
2) What is the average payoff for the 3-year ARM?

A) $ 52,792
B) $ 45,212
C) $ 51,094
D) $ 55,278
Answer: C
Diff: 1
Blooms: Apply
Topic: Decision Strategies with Outcome Probabilities
LO1: Apply average, aggressive, conservative, and opportunity-loss decision strategies for
problems involving minimization and maximization objectives.
3) What is the average payoff for the 5-year ARM?

A) $ 49,514
B) $ 52,015
C) $ 53,395

313
314 Chapter 16: Decision Analysis Business Analytics, 3e
D) $ 51,641
Answer: D
Diff: 1
Blooms: Apply
4) Which of the following decisions has the best average payoff?

A) 1-year ARM
B) 3-year ARM
C) 5-year ARM
D) 30-year fixed
Answer: A
Diff: 1
Blooms: Apply
5) What is the best payoff rate for the 1-year ARM?

A) $ 49,618
B) $ 43,650
C) $ 38,560
D) $ 66,645
Answer: C
Diff: 1
Blooms: Apply
Topic: Decision Strategies Without Outcome Probabilities
6) What is the worst payoff rate for the 5-year ARM?

A) $ 50,894
B) $ 48,134
C) $ 51,641
D) $ 55,895
Answer: D
Diff: 1
Blooms: Apply

Chapter 16: Decision Analysis Business Analytics, 3e 315

7) A(n) is also called a minimax regret strategy.

A) opportunity-loss strategy
B) aggressive strategy
C) conservative strategy
D) average payoff strategy
Answer: A
Diff: 1
Blooms: Remember
Use the information given below to answer the following question(s).
Below is a payoff table that lists three mortgage options:
Outcome
2-year ARM $66,645 $43,650 $38,560
5-year ARM $62,857 $47,698 $42,726
25-year fixed $52,276 $52,276 $52,276
8) What is the maximum opportunity loss incurred for the 2-year ARM?
A) $ 8,626
B) $ 13,716
C) $ 14,369
D) $ 10,581
Answer: C
Diff: 1
Blooms: Apply
9) What is the maximum opportunity loss incurred for the 5-year ARM?
A) $ 8,626
B) $ 13,716

C) $ 14,369
D) $ 10,581
Answer: D
Diff: 1
Blooms: Apply
10) What is the maximum opportunity loss incurred for the 25-year fixed decision?
A) $ 8,626
B) $ 13,716
C) $ 14,369
D) $ 10,581
Answer: B
Diff: 2
Blooms: Apply
The payoff table given below lists four mortgage options:
Outcome
Probability 0.6 0.3 0.1
1-year ARM $66,645 $43,650 $38,560
3-year ARM $62,857 $47,698 $42,726
5-year ARM $55,895 $50,894 $48,134
30-year fixed $52,276 $52,276 $52,276
The probability of rates rising is 0.6, rates stable is 0.3, and rates falling is 0.1.
11) What is the expected payoff for the 1-year ARM?

A) $ 53,082.00
B) $ 16,951.00
C) $ 56,938.00
D) $ 18,979.30
Answer: C

Diff: 2
Blooms: Apply
LO1: Apply expected values to a decision problem when probabilities of events are known.
12) What is the expected payoff of the 5-year ARM?

A) $ 17,872.90
B) $ 53,618.60
C) $ 48,805.20
D) $ 20,081.80
Answer: B
Diff: 2
Blooms: Apply
13) Which of the following decisions has the largest expected payoff?
A) 1-year ARM
B) 3-year ARM
C) 5-year ARM
D) 30-year fixed
Answer: A
Diff: 2
Blooms: Apply
14) Which of the following is considered the best expected value decision?
A) 1-year ARM
B) 3-year ARM
C) 5-year ARM
D) 30-year fixed
Answer: D
Diff: 2
Blooms: Apply

Below is a payoff table that lists four mortgage options:
Outcome
1-year ARM $68,246 $47,487 $36,450
3-year ARM $64,897 $49,356 $44,898
5-year ARM $57,240 $52,988 $50,642
30-year fixed $59,720 $59,720 $59,720
The probability of rates rising is 0.6, rates stable is 0.3, and rates falling is 0.1. Answer the
following questions by creating a decision tree.
15) Which of the following is considered the best expected value decision?
A) 1-year ARM
B) 3-year ARM
C) 5-year ARM
D) 30-year fixed
Answer: C
Diff: 2
Blooms: Apply
Topic: Decision Trees
LO1: Use Risk Solver Platform to construct decision trees.
16) Which of the following is considered the worst expected value decision?
A) 1-year ARM
B) 3-year ARM
C) 5-year ARM
D) 30-year fixed
Answer: D
Diff: 2
Blooms: Apply

Below is a decision tree illustrating the R&D process for a new drug.
Let us assume that if market is large, payoff is lognormally distributed with a mean of $4,900
million and a standard deviation of $1,000 million; if market is medium, payoff is lognormally
distributed with a mean of $2,500 million and a standard deviation of $500 million; and if market
is small, payoff is normally distributed with a mean of $1,800 million and standard deviation of
$200 million. Let us also assume that the cost of clinical trials is uncertain and estimates are
modeled with a triangular distribution with a minimum of -$700 million, a most likely value of -
$550 million, and a maximum of -$500 million. Use 10,000 trials and a random seed of 1.

17) What is the value of mean obtained from the simulation results? [Hint: Choose the
approximate value.]
A) $ 119.0
B) $ 116.1
C) $ 106.2
D) $ 94.4
Answer: C
Diff: 2
Blooms: Apply
LO1: Incorporate Monte Carlo simulation in decision trees.
18) What is the value of standard deviation obtained from the simulation results? [Hint: Choose
the approximate value.]
A) $ 119.1
B) $ 116.1
C) $ 105.7
D) $ 94.4
Answer: A
Diff: 2
Blooms: Apply
19) What is the value of mode obtained from the simulation results? [Hint: Choose the
approximate value.]
A) $ 119.0
B) $ 116.1

C) $ 105.7
D) $ 94.1
Answer: D
Diff: 2
Blooms: Apply
20) What is the mean absolute deviation obtained from the simulation results? [Hint: Choose the
approximate value.]
A) $ 119.0
B) $ 116.1
C) $ 105.7
D) $ 94.0
Answer: D
Diff: 2
Blooms: Apply
21) What is the coefficiIIt of variation obtained from the simulation results? [Hint: Choose the
approximate value.]
A) 1.587
B) 1.122
C) 2.015
D) 1.890
Answer: B
Diff: 2
Blooms: Apply
22) What is the probability that the drug will not reach the market? [Hint: Choose the
approximate value.]
A) 0.95
B) 0.89
C) 0.77
D) 0.82
Answer: D
Diff: 1

Blooms: Apply
Below is a decision tree for the airline revenue management.
Create a one-way table and answer the following questions.
23) What is the expected value of the ticket when a discount is offered on the full fare? [Hint:
Choose the approximate value.]
A) $ 442.50
B) $ 472.00
C) $ 410.00
D) $ 501.50
Answer: C
Diff: 2
Blooms: Apply
24) If the probability of selling the full-fare ticket is 0.80, what is the expected value of the
ticket?
A) $ 442.50
B) $ 472.00
C) $ 501.50
D) $ 531.00

Answer: B
Diff: 2
Blooms: Apply
25) The expected value of perfect information (EVPI) is equal to the .

A) Expected Monetary Value (EMV) with perfect information minus the EMV without any
information
B) EMV with perfect information divided by the EMV without any information
C) sum of the EMV with information and the EMV without any information
D) EMV without any information minus the EMV with perfect information
Answer: A
Diff: 1
Blooms: Apply
Topic: The Value of Information
LO1: Compute the expected value of perfect information.
Use the below information to answer the following question(s).

Below is a payoff table with three mortgage options:
Outcome
1-year ARM $66,645 $43,650 $38,560
3-year ARM $62,857 $47,698 $42,726
30-year fixed $52,276 $52,276 $52,276
26) What is the expected opportunity loss for the 1-year ARM?
A) $ 7,979.60
B) $ 3,959.40
C) $ 6,853.50
D) $ 8,621.40
Answer: D
Diff: 2
Blooms: Apply

27) What is the expected opportunity loss for the 3-year ARM?
A) $ 7,979.60
B) $ 3,959.40
C) $ 6,853.50
D) $ 8,621.40
Answer: A
Diff: 2
Blooms: Apply
28) What is the expected opportunity loss for the 30-year fixed decision?
A) $ 7,979.60
B) $ 3,959.40
C) $ 6,853.50
D) $ 8,621.40
Answer: B
Diff: 2
Blooms: Apply
29) The expected value of sample information (EVSI) is equal to the .

A) Expected Monetary Value (EMV) without sample information divided by the EMV with
sample information
B) EMV without sample information minus the EMV with sample information
C) sum of the EMV with sample information and the EMV without sample information
D) EMV with sample information minus the EMV without sample information
Answer: D
Diff: 1
Blooms: Remember
Use the information below to answer the following question(s)
Misty Inc. launches a new range of perfumes for men and women. The probability of high
consumer demand for the product is 0.6 and low consumer demand is 0.4. The probability of a
favorable survey response given high consumer demand is 0.9 and the probability of a favorable
survey response given low consumer demand is 0.2.

30) What is the likelihood for high demand knowing that the market report is favorable?
A) 84%
B) 90%
C) 87%
D) 80%
Answer: C
Diff: 2
Blooms: Apply
LO1: Incorporate sample information in decision trees and apply Bayes's rule to compute
conditional probabilities.
31) If the marketing report is u’favorable, what is the probability of low demand?
A) 84%
B) 90%
C) 87%
D) 80%
Answer: A
Diff: 2
Blooms: Apply
LO1: Incorporate sample information in decision trees and apply Bayes's rule to compute
conditional probabilities.
32) A children's welfare fundrai’er involves selling one thousand $70 tickets to win a
$20,000’grand prize. If the probability of winning is only 0.005, what is the expected payoff?
A) -$40
B) -$50
C) $30
D) $60
Answer: C
Diff: 1
Blooms: Apply
Topic: Utility and Decision Making
LO1: Construct a utility function and use it to make a decision.
33) Greg is indifferent between receiving $2,000, and taking a chance at $2,500 with probability
0.7 and losing $1200 with probability 0.5. What is the expected value of this gamble?
A) $ 1,150
B) $ 1,800

C) $ 1,460
D) $ 2,045
Answer: A
Diff: 1
Blooms: Apply
Below are four options for an investment decision.
Decision/Event Rates Rise Rates Stable Rates Fall

Bank CD 0.80 0.80 0.80
Bond fund -0.75 0.86 1.50
Index fund 0.00 0.90 1.20
Growth fund -0.30 0.70 1.40
34) Which of the following is the average utility for the bond fund decision?
A) 1.18
B) 0.38
C) 0.54
D) 0.43
Answer: C
Diff: 1
Blooms: Apply
35) Which of the following is the average utility for the index fund decision?
A) 1.05
B) 0.70
C) 0.60
D) 0.45
Answer: B
Diff: 1
Blooms: Apply

36) Identify the average utility for the growth fund decision.
A) 1.05
B) 0.70
C) 0.20
D) 0.60
Answer: D
Diff: 1
Blooms: Apply
37) Based on the average utility, which of the following is considered the best decision?
A) Bank CD
B) Bond fund
C) Index fund
D) Growth fund
Answer: A
Diff: 1
Blooms: Apply
38) Based on the average utility, which of the following is considered the worst decision?
A) Bank CD
B) Bond fund
C) Index fund
D) Growth fund
Answer: B
Diff: 1
Blooms: Apply
39) Which of the following formulas is used to determine the exponential utility function?
A) U(x) = 1 + e—x/R
B) U(x) = 1× ex/R
C) U(x) = 1/ exR
D) U(x) = 1 — e—x/R
Answer: D
Diff: 1

Blooms: Remember
40) If the payoff is $2200 and R is equal to $500, what is the utility function?
A) 0.9877
B) 0.6819
C) 0.7645
D) 0.4502
Answer: A
Diff: 1
Blooms: Apply
41) A payoff table is a matrix whose rows correspond to events and whose columns correspond
to decisions.
Answer: FALSE
Diff: 1
Blooms: Remember
42) For the average payoff strategy, the decision with the best average payoff is chosen.
Answer: TRUE
Diff: 1
Blooms: Remember
Topic: Decision Strategies with Outcome Probabilities.
43) In a minimin strategy, the decision which minimizes the minimum payoff is chosen.
Answer: TRUE
Diff: 1
Blooms: Remember
Topic: Decision Strategies without Outcome Probabilities.
44) The average payoff strategy weights the likelihood that the actual outcomes can occur.
Answer: FALSE

Diff: 1
Blooms: Remember
Topic: Making Decisions with Uncertain Information
45) An outcome over which the decision maker has complete control is called an event node.
Answer: FALSE
Diff: 1
Blooms: Remember
46) What are the three elements required to characterize decisions with uncertain consequences?
Answer: Many decisions involve a choice from among a small set of alternatives with uncertain
consequences. Such decisions can be characterized by defining three things:
(1) the decision alternatives
(2) the outcomes that may occur once a decision is made
(3) the payoff associated with each decision and outcome
Diff: 1
Blooms: Remember
LO1: List the three elements needed to characterize decisions with uncertain consequences.
47) What are the differences between an aggressive strategy and a conservative strategy?
Answer: An aggressive decision maker might seek the option that holds the promise of
minimizing the potential loss. For a minimization objective, this strategy is also often called a
minimin strategy, that is, the decision that minimizes the minimum payoff is chosen. Aggressive
decision makers are often called speculators, particularly in financial arenas because they
increase their exposure to risk in hopes of increasing their return. A conservative decision maker,
on the other hand, might take a more pessimistic attitude. Such a strategy is also known as a
minimax strategy because we seek the decision that corresponds to the minimum value of the
largest cost. Conservative decision makers are often called risk averse and are willing to forgo
potential returns in order to reduce their exposure to risk.
Diff: 2
Blooms: Remember
48) Describe the steps involved in the construction of a decision tree.

Answer: A useful approach to structuring a decision problem involving uncertainty is to use a

graphical model called a decision tree. Decision trees consist of a set of nodes and branches.
Nodes are points in time at which events take place. The event can be a selection of a decision
from among several alternatives, represented by a decision node, or an outcome over which the
decision maker has no control, an event node.
Diff: 1
Blooms: Remember
49) What is the expected value of perfect information?

Answer: The expected value of perfect information (EVPI) is the Expected Monetary Value
(EMV) with perfect information minus the EMV without any information. It represents the most
a person is willing to pay for perfect information. Perfect information states with certainty what
outcome will occur.
Diff: 1
Blooms: Remember
50) What is the expected value of sample information?

Answer: The expected value of sample information (EVSI) is the EMV with sample information
minus the EMV without sample information. It represents the most a person is willing to pay for
the sample information. Sample information is the result of conducting some type of experiment,
such as market research study.
Diff: 1
Blooms: Remember

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Chapter 1: Introduction to Business Analytics 29

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Copyright © 2021 Pearson Education Ltd.

Copyright © 2021 Pearson Education Ltd.

9) Which of the following inputs of a decision model is an example of data?

10) Descriptive decision models:

11) Prescriptive decision models help:

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D) describe relationships and influence of various elements in the model.

13) Which decision model incorporates the process of optimization?

14) Which of the following is the first phase in problem solving?

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Topic: Problem Solving and Decision Making

15) Middle managers in operations:

16) The product mix is determined by the:

18) Which of the following is true about problem solving?

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Substituting the values given in the data:

By solving the two equations, values of a and b can be found.

Substituting values of a and b in the linear demand prediction model:

Revenue (R) = Sales x Price = (2,500 - 4P) × P = 2,500P - 4P2

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Copyright © 2021 Pearson Education Ltd.

28) Why do predictive decision models incorporate uncertainty?

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analyze the risks associated with their decisions.

30) Prescriptive analytics:

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Use the table below to answer the following question(s).

Marked Down Pricing Model for

Retail Price $65

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Topic: Models in Business Analytics

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37) Calculate the revenue for the clearance sales period.

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Use the table below to answer the following question(s).

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Use the chart below to answer the following two questions:

$0$1$2$3 $4$5$6 $7$8$9$10

41) What is the slope of the sales function D = a - bP?

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C) mathematical or computer-based models.

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1) Which of the following symbols is used to represent exponents in Excel?

2) Which of the following ways would 102 × 53 / 100 - 73 be represented in an Excel

Use the data given below to answer the following question(s)

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8) Using a $ sign before a column label .

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Copyright © 2021 Pearson Education Ltd.

Use the data given below to answer the following question(s).

Below is a spreadsheet of purchase orders for a computer hardware retailer.

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15) What is the Insert function in Excel?

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Copyright © 2021 Pearson Education Ltd.

Copyright © 2021 Pearson Education Ltd.

2) In a database, information is stored and maintained in .

4) The sort buttons in Excel can be found under:

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