SDSB – LUMS

DISC 203 – Probability and Statistics

Mid-Term Exam

Name: _______________________ ID: ___________________ Section: ___________________

1. Describe a situation where median is preferred to mean as a measure of central tendency.

- In case of outliers
- In cases where the interest is in finding the central value rather than the percentage value

2. Briefly describe the Data Generation Process.

- The process that creates/ generates the data that we observe. In most cases, the DGP depends on our definition
of the process.

3. Explain why the following graph may be misleading:

- There can be more than one correct answers here. The most obvious is that the graph changes both height as
well as the width of peanut with change in production. The x-axis is for year, so changing the width implies
changing period of production.

4. A press produces parts used in the manufacture of large-screen plasma televisions. If the press is correctly
adjusted, it produces parts with a scrap rate of 5%. If it is not adjusted correctly, it produces scrap at a 50% rate.
From past company records, the machine is known to be correctly adjusted 90% of the time. A quality-control
inspector randomly selects one part from those recently produced by the press and discovers it is defective.
What is the probability that the machine is incorrectly adjusted?
5. Given that 𝑃(𝐴 ∩ 𝐵) = 0.4 and 𝑃(𝐴|𝐵) = 0.8, find 𝑃(𝐵).
𝑃(𝐴 ∩ 𝐵) 𝑃(𝐴 ∩ 𝐵) 0.4
𝑃(𝐴|𝐵) = => 𝑃(𝐵) = = = 0.5
𝑃(𝐵) 𝑃(𝐴|𝐵) 0.8

6. Assume that x is a random variable best described by a uniform distribution with c = 10 and d = 90.
a. What is the mean and standard deviation of x?

b. Find 𝑷(𝒙 ≤ 𝟖𝟎)

7. The probability that a consumer responds to a marketing department’s mailed questionnaire is 0.4. How many
questionnaires should be mailed if you want to be reasonably certain that at least 100 will be returned?
8. To determine whether a metal lathe that produces machine bearings is properly adjusted, a random sample of
25 bearings is collected and the diameter of each is measured.
a. If the standard deviation of the diameters of the bearings measured over a long period of time is
0.001 inch, what is the approximate probability that the mean diameter x of the sample of 25 bearings
will lie within 0.0001 inch of the population mean diameter of the bearings?

b. If the population of diameters has an extremely skewed distribution, how will your approximation in
part a be affected?
9. Studies have shown that drivers who use cell phones while operating a motor passenger vehicle increase their
risk of an accident. Nevertheless, drivers continue to make cell phone calls while driving. A June 2011 Harris Poll
of 2,163 adults found that 60% (1,298 adults) use cell phones while driving.
a. Give a point estimate of p, the true driver cell phone use rate (i.e., the proportion of all drivers who are
using a cell phone while operating a motor passenger vehicle).

b. Find a 95% confidence interval for p.

c. Determine the margin of error in the interval if the number of adults in the survey is doubled

10. The “beta coefficient” of a stock is a measure of the stock’s volatility (or risk) relative to the market as a whole.
Stocks with beta coefficients greater than 1 generally bear greater risk (more volatility) than the market,
whereas stocks with beta coefficients less than 1 are less risky (less volatile) than the overall market. A random
sample of 15 high-technology stocks was selected at the end of 2009, and the mean and standard deviation of
the beta coefficients were calculated: x = 1.23, s = 0.37.
a. Set up the appropriate null and alternative hypotheses to test whether the average high-technology
stock is riskier than the market as a whole. Use a = 0.10.
b. Conduct a test to determine if the variance of the stock beta values differs from .15. Use a = .05.
x   z 2  x  x  z 2  / n    N

N!
 n  n!N  n !
   p 1  p 
z 2   SE p  z 2
 n  n4
(𝑛 − 1)𝑠 2 2
(𝑛 − 1)𝑠 2 𝑥̅ − 𝜇
2
𝜒𝛼/2
≤𝜎 ≤ 2
𝜒1−𝛼/2
𝑡= 𝜎
√𝑛
 
2 n  1s 2 𝑝̂−𝑝0 𝑝0 𝑞0
𝑧= , 𝜎𝑝̂ = √
0
2 𝜎𝑝
̂ 𝑛
𝑛
𝑃(𝑥) = ( ) 𝑝 𝑥 𝑞𝑛−𝑥
𝑥 𝜆𝑥 𝑒 −𝜆
𝑃 (𝑥 ) =
𝑟 𝑁−𝑟
𝑥!
( )( )
𝑥 𝑛−𝑥
𝑃(𝑥) =
𝑁
( )
𝑛
P( Bi  A)
P( Bi | A) 
P( A)
P( Bi )P( A | Bi )

P( B1 ) P( A | B1 )  P( B2 )P( A | B2 )  ...  P( Bk )P( A | Bk )
T-Table