Topic 4 Workshop Questions

Question 1.

During a recent promotion, a bank offered mortgages with terms of one, two and three years at a
reduced interest rate. Customers could also choose between open and closed mortgages. From the file
of approved mortgage applications, the manager selects one application and notes both the term of the
mortgage and whether it is open or closed. A sample space for this experiment is {O1, O2, O3, C1, C2,
C3}, where, for example, O2 represents selection of an open two-year mortgage. Consider the
following events:

A = {O1, O2, O3}

B = {O2, C2}

a. Describe each of the events A and B in words.

b. List the outcomes in ( A ∪ B) and use a Venn diagram to depict the union graphically.

c. List the outcomes (A ∩ B) and use a Venn diagram to depict the intersection graphically.

d. List the outcomes in Bc and use a Venn diagram to depict the complement graphically.

e. Are A and B mutually exclusive events? Explain.

Question 2.

Referring to Question 1, suppose that 300 mortgage applications were approved and that the numbers
of mortgages of each type were as shown in the following table. The manager selects one mortgage
application at random, and relevant events are defined as follows:

L: The application selected is for a one-year mortgage.

M: The application selected is for a two-year mortgage.

N: The application selected is for a three-year mortgage.

C: The application selected is for a closed mortgage.

Type of mortgage Term of mortgage

One (L) Two (M) Three (N)

Open (CC) 32 36 60

Close (C) 80 48 44

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a. Complete the joint probability distribution in the table below.

Type of mortgage Term of mortgage P(type)

One (L) Two (M) Three (N)

Open (CC)

Close (C)

P(term)

b. Find the probability that the mortgage application selected is for:

Answer:

i. a one-year mortgage

ii. a two-year mortgage

iii. a three-year mortgage

iv. a closed mortgage

v. an open mortgage.

c. Find the probability that the term of the mortgage selected is longer than one year.

Question 3.

Refer to Question 2, express each of the following events in words, and find its probability.

a. L or M

b. L or C

c. M and CC

d. NC and C

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Question 4.

Suppose we have the following joint probabilities:

a. Calculate the marginal probabilities.

Answer:

Marginal probabilities Marginal probabilities

A P(A) B P(B)

A1 B1

A2 B2

A3

b. Calculate P(A1|B1).

c. Calculate P(A2|B1).

d. Calculate P(A3|B1).

e. Do your answers in parts (b), (c) and (d) sum to one? Is this a coincidence? Explain.

Question 5.

The female lecturers at a large university recently lodged a complaint about the most recent round of
promotions from lecturers to senior lecturers. An analysis of the relationship between gender and
promotion was undertaken, with the joint probabilities in the following table being produced:

a. What is the rate of promotion among female lecturers?

b. What is the rate of promotion among male lecturers?

c. Is it reasonable to accuse the university of gender bias?

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Question 6.

An international aerospace company has submitted bids on two separate federal government defence
contracts, A and B. The company feels that it has a 60% chance of winning contract A and a 30%
chance of winning contract B. If the company wins contract B then the company believes it has an
80% chance of winning contract A.

Define events:

A: The company wins contract A, and

B: The company wins contract B

a. What is the probability that the company will win both contracts?

b. What is the probability that the company will win at least one of the two contracts?

c. If the company wins contract B, what is the probability that it will not win contract A?