Exercises (probability distribution)

1. Nimal, who frequently invests in the stock market, carefully studies any potential
investment. He is currently examining the possibility of investing in the Trinity
Power Company. Through studying past performance, Nimal has broken the
potential results of the investment into five possible outcomes with accompanying
probabilities, The outcomes annual rates of return on a single share of stock that
currently costs Rs.150. Find the expected value of the return for investing in a
single share of Trinity power.

Return on investment(%) 00 10 15 25 50
Probability 0.20 0.25 0.30 0.15 0.10

If Nimal purchases stock whenever the expected rate of return exceeds 10 percent,
will he purchase the stock, according to these data? Calculate the standard deviation.

2 . The manager of a large computer network has developed the following probability
distribution of the number of interruptions per day.

Interruptions (X) P (X)

0 0.32
1 0.35
2 0.18
3 0.08
4 0.04
5 0.02
6 0.01

a. Compute the mean or expected number of interruptions per day.

b. Compute the standard deviation.

3. The manager of the commercial mortgage department of a large bank has collected
data during the past two years concerning the number of commercial mortgages approved
per week. The results from these two years (104 weeks) indicated the following:

Number of Commercial
Mortgages Approved Frequency
0 13
1 25

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3 17
4 9
5 6
6 1
7 1
a. Compute the expected number of mortgages approved
per week.
b. Compute the standard deviation.

4. You are trying to develop a strategy for investing in two different stocks. The
anticipated annual return for a $1,000 investment in each stock under four different
economic conditions has the following probability distribution:

Returns (%)
Probability Economic Condition Stock X Stock Y
0.1 Recession -50 -100
0.3 Slow growth 20 50
0.4 Moderate growth 100 130
0.2 Fast growth 150 200

Compute the
a. expected return for stock X and for stock Y.
b. standard deviation for stock X and for stock Y.
c. covariance of stock X and stock Y.
d. Would you invest in stock X or stock Y? Explain.

5. Yonezawa Davidson, director of quality control for the Kyoto Motor Company is
conducting his monthly spot check of automatic transmissions. In this procedure, 10
transmissions are removed from the pool of components and are checked for
manufacturing defects. Historically, only 2 percent of the transmissions have such
flaws.

a. What is the probability that Yonezawa’s sample contains more than two transmissions
with manufacturing flaws?

b. What is the probability that none of the selected transmissions has any manufacturing
flaws?

If 500 such samples are investigated find the expected number of samples with

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 i. two transmissions with manufacturing flaws
ii. none of the selected transmissions has any manufacturing flaws

6. a. In a manufacturing process the probability of getting a defective bolt is 0.2. Find the
Mean and Standard Deviation for the distribution of defective bolts in a total of 400.

b. 40% of the employees of a certain factory suffer from certain disease. Find the
probability that out of six employees chosen at random , at least 04 suffer from this
disease.

7. Suppose we are investigating the safety of a dangerous intersection. Past police records
indicate a mean of 5 accidents per month at this intersection. The number of accidents
is distributed according to a Poisson distribution and motor traffic department wants us
to calculate the probability in any month of exactly 0, 1, 2, 3, and 4 accidents.

8. Find the normal curve area which lies:

(i) to the right of z = 1.45

(ii) to the left of z = 1.95
(iii) between z = 0.85 and z = 1.65
(iv) between Z= - 2.8 and Z= -1.20

9. Find Z (i) if normal curve area between o and Z is 0. 3520

(ii) if normal curve area to the right of Z is 0.6289

10. A manufacturer of fruit drinks sells his product in bottles filled by a machine. The
volume per bottle is normally distributed with a mean of 260ml and a standard
deviation of 8ml. A bottle from the production is chosen at random and the volume of
its contents is measured.
i. Find the probability that the volume of contents of this bottle is
a. between 240ml and 250ml
b. less than 238ml

ii. Find the highest volume among the 4% of bottles with low volume.
iii. If in a day’s production of 5000 bottles, 66 bottles are marked as high volume, find
the lowest volume in a bottle among these high volume bottles.

11. An urban Council has installed 4000 lamps with mercury bulbs in the streets of its
city area. The lifetime of these bulbs are known to be normally distributed with a
mean of1100 burning hours and a standard deviation of 200 hours. How many of
these bulbs can be expected to fail

a. In the first 800 burning hours?

b. Between 750 and1500 burning hours?

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 c. After what number of burning hours would you expect that 10 % of the
bulbs are still in good condition?

12. A firm of stockbrokers will on average handle 2,500 shares a day with a standard
deviation of 250 shares. If the number of shares sold is normally distributed, find the
answers to the following questions:
(a) What is the probability that more than 2,700 shares will be sold in one day?
(b) What is the probability that less than 1,900 shares are sold on any one day?
(c) What is the probability that the stockbrokers will sell between 2,300 and 2,550
shares a day?
(d) What is the probability that they will sell either more than 3,125 or less than 2,000
shares in a day?

13. Computers consist of a number of components one of which is a memory. These

memories, produced by an automatic process, have working life which is normally
distributed with a mean of 500 hours and a standard deviation of 30 hours. If one
thousand of these memories are selected at random from the production line, answer
the following questions.
(a) How many of the memories would you expect to last for longer than 550 hours?
(b) How many memories would you expect to have a life of between 480 and 510
hours?
(c) How many memories would you expect to have a life of more than 560 hours or
less than 440 hours?

14. Ten percent of the shirts prepared for the shipping by a company has minor defects.
The remaining 90 percent are free of defects. The shirts are shipped in boxes containing
25 shirts. What is the probability that a small retailer will receive a box with

i. Exactly three defective shirts

ii. No defective shirts
iii. No more than 5 defective shirts .
iv. At least 1 but not more than 3 defective shirts

15. The number of people arriving at a bank teller machine is Poisson distributed with a
mean rate of 0.75 people per minute. What is the probability that two or less people will
arrive in the next 6 minutes.

16. It has been found that, on average, 5% of the eggs supplied to a supermarket are
cracked. If you buy a box of 6 eggs, what is the probability that it contains 2 or more
cracked eggs?

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