1.

An IBD/TIPP poll conducted to learn about attitudes toward investment and retirement, asked
male and female respondents how important they felt level of risk was in choosing a retirement
investment. The following joint probability table was constructed from the data provided.
Important me ans the respondent said level of risk was either important or very important.
Male Female Total
Important 0.22 0.27 0.49
Not Important 0.28 0.23 0.51
Total 0.5 0.5

a. What is the probability a survey respondent will say level of risk is important?
b. What is the probability a male respondent will say level of risk is important?
c. What is the probability a female respondent will say level of risk is important?
d. Is the level of risk independent of the gender of the respondent? Why or why not?
e. Do male and female attitudes towards risk differ?
Solution: Let I = important or very important
M = male
F = female

a. P(I) = .49 (a marginal probability)

b. P(I | M) = .22/.50 = .44 (a conditional probability)

c. P(I | F) = .27/.50 = .54 (a conditional probability)

d. It is not independent

P(I) = .49 = P(I | M) = .44
and
P(I) = .49 = P(I | F) = .54

e. Since level of importance is dependent on gender, we conclude that male and female
respondents have different attitudes toward risk.
2. A local bank reviewed its credit card policy with the intension of recalling some of its credit
cards. In the past approximately 5% of cardholders defaulted, leaving the bank unable to collect
the outstanding balance. Hence management established a prior probability of .05 that any
particular cardholder will default. The bank also found that the probability of missing a monthly
payment is .20 for customers who do not default. Of course, the probability of missing a monthly
payment for those who default is 1.
a. Given that a customer missed one or more monthly payments, compute the posterior
probability that the customer will default.
b. The bank would like to recall its card if the probability that a customer will default is
greater than .20. Should the bank recall its card if the customer misses a monthly
payment? Why or why not?

Solution: M = missed payment
D
1
= customer defaults
D
2
= customer does not default

P(D
1
) = .05 P(D
2
) = .95 P(M | D
2
) = .2 P(M | D
1
) = 1

a.
1 1
1
1 1 2 2
(D ) (M D )
(.05)(1) .05
(D M) .21
(D ) (M D ) (D ) (M D ) (.05)(1) (.95)(.2) .24
P P
P
P P P P
= = = =
+ +


b. Yes, the probability of default is greater than .20.

3. A survey of magazine subscribers showed that 45.8% rented a car during the past 12 months for
business reasons, 54% rented a car during the past 12 months for personal reasons , and 30%
rented a car during the past 12 months for both business and personal reasons.
a. What is the probability that a subscriber rented a car during the past 12 months for
business or personal reasons?
b. What is the probability that a subscriber did not rent a car during the past 12 months
for either business or personal reasons?

Solution:

Let: B = rented a car for business reasons
P = rented a car for personal reasons

a. P(B P) = P(B) + P(P) - P(B P)
= .54 + .458 - .30 = .698

b. P(Neither) = 1 - .698 = .302

4. A study of job satisfaction was conducted for four occupations: Cabinetmaker, lawer, physical
therapist, and systems analyst. Job satisfaction was measured on a scale of 0-100. The data
obtained are summarized in the following cross tabulation.

Occupation Under 50 50 - 59 60 -69 70 79 80 89
Cabinetmaker 0 2 4 3 1
Lawyer 6 2 1 1 0
Physical Therapist 0 5 2 1 2
Systems Analyst 2 1 4 3 0

a. Develop a joint probability table.
b. What is the probability one of the participants studied received a satisfaction score in the
80s?
c. What is the probability of a satisfaction score in the 80s given the study participant was a
physical therapist?
d. What is the probability one of the participants studied was a lawyer?
e. What is the probability one of the participants was a lawyer and received a score under 50?
f. What is the probability of receiving a satisfaction score under 50 given a person is a
lawyer?
g. What is the probability of a satisfaction score 70 or higher?
h. What is the probability one of the participants studied received a satisfaction score in 90s?
Solution:
a.
Satisfaction Score
Occupation Under 50 50-59 60-69 70-79 80-89 Total
Cabinetmaker .000 .050 .100 .075 .025 .250
Lawyer .150 .050 .025 .025 .000 .250
Physical Therapist .000 .125 .050 .025 .050 .250
Systems Analyst .050 .025 .100 .075 .000 .250
Total .200 .250 .275 .200 .075 1.000

b. P(80s) = .075 (a marginal probability)

c. P(80s | PT) = .050/.250 = .20 (a conditional probability)

d. P(L) = .250 (a marginal probability)

e. P(L Under 50) = .150 (a joint probability)

f. P(Under 50 | L) = .150/.250 = .60 (a conditional probability)

g. P(70 or higher) = .275 (Sum of marginal probabilities)

h. P (90s) = 0

5. Business Week conducted a survey of graduates from 30 top MBA programs. On the basis of the
survey, assume that the mean annual salary for male and female graduates 10 years after
graduation is $168,000 and $117,000, respectively. Assume the standard deviation for the male
graduates is $40,000, and for female graduates it is $25,000.

a. What is the probability that a simple random sample of 40 male graduates will provide a sample
mean within $10,000 of the population mean, $168,000?
b. What is the probability that a simple random sample of 40 female graduates will provide a
sample mean within $10,000 of the population mean, $117,000?
c. In which of the preceding two cases, part (a) or part (b), do we have a higher probability of
obtaining a sample estimate within $10,000 of the population mean? Why?
d. What is the probability that a simple random sample of 100 male graduates will provide a
sample mean more than $4,000 below the population mean?

Solution
a. / 40, 000/ 40 6324.56
x
n o o = = =

At x = 178,000,
178, 000 168, 000
1.58
6324.56
z

= = P(z 1.58) = .9429

At x = 158,000, z = -1.58

P(z < -1.58) = .0571, thus

P(158,000 x 178,000) = .9429 - .0571 = .8858

b. / 25, 000/ 40 3952.85
x
n o o = = =

At x = 127,000,
127, 000 117, 000
2.53
3952.85
z

= = P(z 2.53) = .9943

At x = 107,000, z = -2.53, P(z < -2.53) = .0057, thus

P(107,000 x 127,000) = .9943 - .0057 = .9886

c. In part (b) we have a higher probability of obtaining a sample mean within $10,000 of the
population mean because the standard error is smaller.

d. With n = 100, / 40, 000/ 100 4000
x
n o o = = =

At x = 164,000,
164, 000 168, 000
1
4000
z

= =

P( x < 164,000) = P(z < -1) = .1587

Therefore, the probability that a simple random sample of 100 male graduates will provide a sample
mean more than $4,000 below the population mean is (1-0.1587 = 0.8413)

6. To estimate the mean age for a population of 4000 employees, a simple random sample of 40
employees is selected.
a. Would you use the finite population correction factor in calculating the standard error of the
mean? Explain.
b. if the population standard deviation is o =8.2 years, compute the standard error both with and
without the finite population correction factor. What is the rationale for ignoring the finite
population correction factor whenever / .05 n N s ?

Solution

a. n / N = 40 / 4000 = .01 < .05; therefore, the finite population correction factor is not
necessary.

b. With the finite population correction factor

o
o
x
N n
N
n
=

=
1
4000 40
4000 1
82
40
129
.
.

Without the finite population correction factor

o o
x
n = = / . 130

Including the finite population correction factor provides only a slightly different value for
o
x
than when the correction factor is not used.

7. The Food Marketing Institute shows that 17% of households spend more than $100 per week on
groceries. Assume the population proportion is p = .17 and a simple random sample of 800
households will be selected from the population.
a. Show the sampling distribution of p , the sample proportion of households spending more than
$100 per week on groceries.
b. What is the probability that the sample proportion will be within .02 of the population
proportion?
c. Answer part (b) for a sample of 1600 households.

Solution

a. E( p ) = .17


(1 ) (.17)(1 .17)
.0133
800
p
p p
n
o

= = =

Distribution is approximately normal because np = 800(.17) = 136 > 5
and n(1 p) = 800(.83) = 664 > 5

b.
.19 .17
1.51
.0133
z

= = P(z 1.51) = .9345

P(z < -1.51) = .0655

P(.15 s p s .19) = P(-1.51 s z s 1.51) = .9345 - .0655 = .8690

c.
(1 ) (.17)(1 .17)
.0094
1600
p
p p
n
o

= = =


.19 .17
2.13
.0094
z

= = P(z 2.13) = .9834

P(z < -2.13) = .0166

P(.15 s p s .19) = P(-2.13 s z s 2.13) = .9834 - .0166 = .9668

8. Playbill magazine reported that the mean annual household income of its readers is $119,155.
Assume this estimate of the mean annual household income is based on a sample of 80
households, and based on past studies, the population standard deviation is known to be o =
$30,000.
a. Develop a 90% confidence interval estimate of the population mean.
b. Develop a 95% confidence interval estimate of the population mean.
c. Develop a 99% confidence interval estimate of the population mean.
d. Discuss what happens to the width of the confidence interval as a confidence level is increased.
Does this result seem reasonable? Explain.

Solution

a. x z
n

o
o
/ 2


119,155 1.645(30, 000/ 80)

119,155 5517 or $113,638 to $124,672

b. 119,155 1.96 (30, 000/ 80)

119,155 6574 or $112,581 to $125,729

c. 119,155 2.576 (30, 000/ 80)

119,155 8640 or $110,515 to $127,795

d. The confidence interval gets wider as we increase our confidence level. We need a wider
interval to be more confident that it will contain the population mean.

9. Is your favorite TV program often interrupted by advertising? CNBC presented statistics on the
average number of programming minutes in a half hour sitcom. The following data (in minutes)
are representative of their findings.











Assume the population is approximately normal. Provide a point estimate and a 95%
confidence interval for the mean number of programming minutes during a half-hour television
sitcom.
Solution

/ 22 minutes
i
x x n = E =


2
( )
1.12 minutes
1
i
x x
s
n
E
= =

x t
.025
( / ) s n df = 19

22.00 2.093 (1.12/ 20)
21.06 22.24 20.62
21.66 21.23 23.86
23.82 20.3 21.52
21.52 21.91 23.14
20.02 22.2 21.2
22.37 22.19 22.34
23.36 23.44


22.00 .52 or 21.48 to 22.52 minutes