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Week 06
Week 06
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 1
Chapter 5
Discrete Probability
Distributions
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 2
Learning Objectives
In this chapter, you learn:
The properties of a probability distribution
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 3
Random Variables
RANDOM VARIABLE A quantity resulting from an experiment that, by
chance, can assume different values.
Nomenclature:
- Upper case letters are used to represent random variables (e.g., X, Y).
- Lower case letters are used to represent values of the random variable
(e.g., x, y).
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 4
6-4
Definitions
Discrete variables produce outcomes that come from a counting
process (e.g. number of classes you are taking).
EXAMPLES:
The number of students in a class
The number of children in a family
The number of cars entering a carwash in a hour
The number of home mortgages approved by Coastal Federal Bank last
week
Continuous variables produce outcomes that come from a
measurement (e.g. your annual salary, or your weight).
EXAMPLES:
The length of each song on the latest Tim McGraw CD
thickness of an item
temperature of a solution
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 5
Types Of Variables
Types Of
Variables
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 6
Discrete Probability Distribution
Experiment: Toss 2 Coins. Let x = # heads.
4 possible outcomes
Probability Distribution
# heads Frequency Relative Frequency
T T
0 1 1/4 = .25
1 2 2/4 = .50
T H 2 1 1/4 = .25
Probability
.50
H T
.25
0 1 2
# of heads in two coin flips
H H
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 7
Discrete Variables
Can only assume a countable number of values
Examples:
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 8
Probability Distribution For A
Discrete Variable
A probability distribution for a discrete variable is a
mutually exclusive listing of all possible numerical
outcomes for that variable and a probability of occurrence
associated with each outcome.
Interruptions Per Day In Probability
Computer Network
0 0.35
1 0.25
2 0.20
3 0.10
4 0.05
5 0.05
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 9
Rules for Discrete Probability
Distributions
A discrete probability distribution meets the following
conditions:
Each outcome in the distribution needs to be mutually exclusive
with other outcomes in the distribution
The probability of each outcome, P(x), must be between 0 and 1
(inclusive):
0 P(x) 1 for all values of x
The sum of the probabilities for all the outcomes in the distribution
must be 1
n
P(x ) 1
i 1
i
0.4
0.3
0.2
0.1
0 1 2 3 4 5 X
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 11
Discrete Distributions
If X is the number
of heads, then X
is a random
variable whose
probability
distribution is
given in Table
6.1.
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 12
Discrete Distributions
Note that the values of X need Note also that a discrete probability
not be equally likely. However, distribution is defined only at specific
they must sum to unity. points on the X-axis.
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 13
Expected Value and Variance
The Mean of a Discrete Probability Distribution
The mean is a typical value used to represent the central location of a
probability distribution.
The mean of a probability distribution is also referred to as its expected
value.
Expected Value
The expected value E(X) of a discrete random variable is the
sum of all X-values weighted by their respective probabilities.
E(X) is a measure of central tendency.
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 14
Expected Value and Variance
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 15
Expected Value and Variance
m = 2.75
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 17
The Variance and Standard Deviation
of a Discrete Probability Distribution
The Variance is a measure of the spread of the
individual values around the mean of a data set. It is a
measure of variability.
n
2 ( xi m ) 2 P( xi )
i 1
where:
2 = The variance of the discrete probability distribution
xi = The value of the random variable for the ith outcome
= The mean of the discrete probability distribution
P(xi) = The probability that the ith outcome will occur
n = The number of outcomes in the distribution
Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall
5-18
The Variance and Standard Deviation of a
Discrete Probability Distribution
Standard Deviation
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 19
The Variance and Standard Deviation of a
Discrete Probability Distribution
Example: Bed and Breakfast
The Bay Street Inn is a seven-room bed-and-breakfast in the sunny California
coastal city of Santa Theresa. Demand for rooms generally is strong during
February, a prime month for tourists. However, experience shows that demand
is quite variable. The probability distribution of room rentals during February is
shown in Table 6.4 where X = the number of rooms rented (X = 0, 1, 2, 3, 4, 5,
6, 7). The worksheet shows the calculation of E(X) and Var(X).
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 20
The Variance and Standard Deviation of a
Discrete Probability Distribution
Example: Bed and Breakfast
The histogram shows that the distribution is skewed to the left and
bimodal.
0.30
0.25
Probability 0.20
The mode is 7
rooms rented but 0.15
0.00
0 1 2 3 4 5 6 7
Num ber of Room s Rented
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 21
Discrete Variables: Measuring Dispersion
(continued)
N
[x
i 1
i E(X)] P(X x i )
2
Interruptions Per
Day In Computer Probability
Network (xi) P(X = xi) [xi E(X)]2 [xi E(X)]2P(X = xi)
0 0.35 (0 1.4)2 = 1.96 (1.96)(0.35) = 0.686
1 0.25 (1 1.4)2 = 0.16 (0.16)(0.25) = 0.040
2 0.20 (2 1.4)2 = 0.36 (0.36)(0.20) = 0.072
3 0.10 (3 1.4)2 = 2.56 (2.56)(0.10) = 0.256
4 0.05 (4 1.4)2 = 6.76 (6.76)(0.05) = 0.338
5 0.05 (5 1.4)2 = 12.96 (12.96)(0.05) = 0.648
2 = 2.04, = 1.4283
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 22
Covariance
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 23
The Covariance Formula
N
XY [ x i E ( X )][( yi E (Y )] P ( X x i , Y yi )
i 1
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 24
Investment Returns
The Mean
Consider the return per $1000 for two types of
investments.
Investment
Economic Condition
Prob. Passive Fund X Aggressive Fund Y
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 25
Investment Returns
The Mean
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 26
Investment Returns
Standard Deviation
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 27
Investment Returns
Covariance
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 28
The Sum of
Two Variables
Expected Value of the sum of two variables:
E(X Y) E( X) E( Y )
Var(X Y) 2X Y 2X 2Y 2 XY
X Y 2
X Y
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 29
Portfolio Expected Return and
Expected Risk
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 30
Portfolio Expected Return
and Portfolio Risk
P w 2 2X (1 w )2 2Y 2w(1 - w) XY
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 31
Portfolio Example
Investment X: X = 50 X = 43.30
Investment Y: Y = 95 Y = 193.21
XY = 8250
The portfolio return and portfolio variability are between the values
for investments X and Y considered individually
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 32
Probability Distributions
Probability
Distributions
Binomial Normal
Poisson Uniform
Hypergeometric Exponential
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 33
Binomial Probability Distribution
A fixed number of observations, n
e.g., 15 tosses of a coin; ten light bulbs taken from a warehouse
Each observation is categorized as to whether or not the
event of interest occurred
e.g., head or tail in each toss of a coin; defective or not defective
light bulb
Since these two categories are mutually exclusive and
collectively exhaustive
When the probability of the event of interest is represented as ,
then the probability of the event of interest not occurring is 1 -
Constant probability for the event of interest occurring
() for each observation
Probability of getting a tail is the same each time we toss the
coin
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 34
Binomial Probability Distribution
(continued)
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 35
Possible Applications for the
Binomial Distribution
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 37
Counting Techniques
Rule of Combinations
n!
n Cx
x! (n x)!
where:
n! =(n)(n - 1)(n - 2) . . . (2)(1)
x! = (X)(X - 1)(X - 2) . . . (2)(1)
0! = 1 (by definition)
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 38
Counting Techniques
Rule of Combinations
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 39
Binomial Distribution Formula
n! x nx
P(X=x |n,) (1-)
x! (n x )!
n!
P(X 1 | 5,0.1) x (1 ) n x
x! (n x)!
5!
(0.1)1 (1 0.1) 51
1!(5 1)!
(5)(0.1)(0 .9) 4
0.32805
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 41
The Binomial Distribution
Example
Suppose the probability of purchasing a defective
computer is 0.02. What is the probability of
purchasing 2 defective computers in a group of 10?
x = 2, n = 10, and = 0.02
n!
P(X 2 | 10, 0.02) x (1 ) n x
x! (n x)!
10!
(.02) 2 (1 .02)10 2
2!(10 2)!
(45)(.0004 )(.8508)
.01531
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 42
The Binomial Distribution
Shape
P(X=x|5, 0.5)
.6
.4
Here, n = 5 and = .5 .2
0
0 1 2 3 4 5 x
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 43
The Binomial Distribution Using
Binomial Tables (Available On Line)
n = 10
x =.20 =.25 =.30 =.35 =.40 =.45 =.50
0 0.1074 0.0563 0.0282 0.0135 0.0060 0.0025 0.0010 10
1 0.2684 0.1877 0.1211 0.0725 0.0403 0.0207 0.0098 9
2 0.3020 0.2816 0.2335 0.1757 0.1209 0.0763 0.0439 8
3 0.2013 0.2503 0.2668 0.2522 0.2150 0.1665 0.1172 7
4 0.0881 0.1460 0.2001 0.2377 0.2508 0.2384 0.2051 6
5 0.0264 0.0584 0.1029 0.1536 0.2007 0.2340 0.2461 5
6 0.0055 0.0162 0.0368 0.0689 0.1115 0.1596 0.2051 4
7 0.0008 0.0031 0.0090 0.0212 0.0425 0.0746 0.1172 3
8 0.0001 0.0004 0.0014 0.0043 0.0106 0.0229 0.0439 2
9 0.0000 0.0000 0.0001 0.0005 0.0016 0.0042 0.0098 1
10 0.0000 0.0000 0.0000 0.0000 0.0001 0.0003 0.0010 0
Examples:
n = 10, = 0.35, x = 3: P(X = 3|10, 0.35) = 0.2522
n = 10, = 0.75, x = 8: P(X = 8|10, 0.75) = 0.2816
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 44
Binomial Distribution
Characteristics
Mean
E(X) n
n (1 - )
2
n (1 - )
Where n = sample size
= probability of the event of interest for any trial
(1 ) = probability of no event of interest for any trial
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 45
The Binomial Distribution
Characteristics
Examples
P(X=x|5, 0.1)
n (5)(.1) 0.5 .6
.4
n (1 - ) (5)(.1)(1 .1) .2
0
0.6708 0 1 2 3 4 5 x
P(X=x|5, 0.5)
n (5)(.5) 2.5 .6
.4
n (1 - ) (5)(.5)(1 .5) .2
0
1.118 0 1 2 3 4 5 x
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 46
Both Excel & Minitab Can Be Used To Calculate
The Binomial Distribution
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 47
The Poisson Distribution
Definitions
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 48
The Poisson Distribution
Apply the Poisson Distribution when:
You wish to count the number of times an event
occurs in a given area of opportunity
The probability that an event occurs in one area of
opportunity is the same for all areas of opportunity
The number of events that occur in one area of
opportunity is independent of the number of events
that occur in the other areas of opportunity
The probability that two or more events occur in an
area of opportunity approaches zero as the area of
opportunity becomes smaller
The average number of events per unit is (lambda)
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 49
Poisson Distribution Formula
e x
P( X x | )
x!
where:
x = number of events in an area of opportunity
= expected number of events
e = base of the natural logarithm system (2.71828...)
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 50
Poisson Distribution
Characteristics
Mean
where = expected number of events
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 51
Using Poisson Tables
(Available On Line)
e x e 0.50 (0.50) 2
P(X 2 | 0.50) 0.0758
x! 2!
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 52
Excel & Minitab Can Be Used For The
Poisson Distribution
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 53
Graph of Poisson Probabilities
Graphically:
= 0.50
=
X 0.50
0 0.6065
1 0.3033
2 0.0758
3 0.0126
4 0.0016
5 0.0002
6 0.0000
P(X = 2 | =0.50) = 0.0758
7 0.0000
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 54
Poisson Distribution Shape
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 55
The Hypergeometric Distribution
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 56
The Hypergeometric Distribution
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 57
Hypergeometric Distribution
Formula
E N E
[ E Cx ][ N E Cn x ] x n x
P(X x | n, N, E)
N Cn N
n
Where
N = population size
E = number of items of interest in the population
N E = number of events not of interest in the population
n = sample size
x = number of items of interest in the sample
n x = number of events not of interest in the sample
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 58
Properties of the
Hypergeometric Distribution
N-n
Where is called the Finite Population Correction Factor
N -1
from sampling without replacement from a
finite population
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 59
Using the
Hypergeometric Distribution
Example: 3 different computers are checked out from
10 in the department. 4 of the 10 computers have illegal
software loaded. What is the probability that 2 of the 3
selected computers have illegal software loaded?
N = 10 n=3
A=4 x=2
E N E 4 6
P(X 2 | 3,10,4) 2 1 (6)(6) 0.3
X n X
N 10 120
n 3
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 61
Chapter 5 On Line Topic
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 62
Chapter Summary
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 63
Chapter 5
The Poisson
Approximation to the
Binomial Distribution --
On Line Topic
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 64
Learning Objective
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 65
Poisson Approximation to the
Binomial Distribution
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 66
Poisson Approximation to the
Binomial Distribution
(continued)
n 5
and
n(1 ) 5
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 67
Poisson Approximation to the
Binomial Distribution
(continued)
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 68
Using the Poisson Approximation
to the Binomial Distribution
If n = 1000 and = 0.2, what is P(X 180)?
Approximate P(X 180 | 1000, 0.2) using a continuity
correction adjustment:
P(X 180.5)
Transform to standardized normal:
X n 180.5 (1000)(0.2 )
Z 1.54
n (1 ) (1000)(0.2 )(1 0.2)
180.5 200 X
-1.54 0 Z
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 69
End of Chapter 5
THANK YOU!
Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 05, Slide 70