TIME SERIES ANALYSIS

1Q) Explain time series data and what are its four components?
2Q) Write a short notes on secular trend & its purpose?
3Q) What is seasonal variation & its purpose?
4Q) What is random or irregular variation?
5Q) what is meant by cyclical variations?
6Q) Explain the meaning and importance of time series? Also explain
cyclical variations?
7Q) How to measure periodic variations?

QUESTION & ANSWERS :1Q) Explain time series data and what are its four components?
Ans)
Time series is series of data collected over a period of time
separated by successive time intervals. Technically, a time series is a
bivariate data set in which one variable is time and hence can be
expressed as:
TS = {(t, Yt) t is successive time when Ys were recorded}
The time series is employed for two basic purposes:
1) To study and characterize the past behaviour of data
2) To make a plausible forecast for the future
For illustration let us look at a fundamental conceptual model of a product
life cycle through four stagesintroduction, growth, maturity and decline.
The sales performance of this product goes through these four stages
1)
2)
3)
4)

Secular trend.
Periodic variations comprising of seasonal variations.
Cyclical variations.
Random or irregular variations.

2Q) Write a short notes on secular trend & its purpose?

Ans)
This is a smooth, regular and long-term upward or downward
movement in the data. It reveals the general tendency of gradual increase/
decrease over a long period of time. The increase may be due to joint
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action of various factors like changes of tastes and habits of people,

population growth, development to new techniques, etc. again the
downward movement may be related to epidemics, deaths due to
availability of better and cheaper substitute or difficulty in getting raw
materials or decrease of demand etc.
According to simpson and Kafka,
Trend also called secular or long-trend, is the basic
tendency of a series.to grow or decline over a period of time.
The concept of trend does not include short range
oscillations, but rather the steady movement over a long time.
Purpose of measuring trend:1) To study the part growth of decline or a series. This trend shows the
basic growth tendency ignoring short term fluctuations.
2) Trend analysis helps us to compare two or more time series over
different periods of time and draw conclusion about them.
3Q) What is seasonal variation & its purpose?
Ans)
This is short-term periodic movement, where period is not longer
than one year. Most of the business activities have a slack and brisk
periods every year, and such periods are mostly related to the changing
seasons (weather) orto holidays or to social customs recurring with
remarkable regularly after a period of time, not exceeding a year. This kind
of movement of data is conveniently termed as seasonal variation.
Purpose of measuring seasonal variations:1) To analyse past seasonal behaviour.
2) To predict seasonal variations as an aid to short-term planning.
4Q) What is random or irregular variation?
Ans) Irregular variations are of a random nature and rise due to occational
factors and change events like floods, drought, earthquakes and other natural
calamities, strickes, lockouts, etc.
5Q) what is meant by cyclical variations?
Ans) This is another type of periodic movement where the period is more than a
year. The movements are oscillatory. One complete period is called a cycle. In
economic and business activities have four distinct phases:

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Prosperity, decline, depression and recovery; they constitute the business cycle
and these four phases recur after a period of time longer then a year.
Purpose of measuring cyclical variations:1) To predict the turning points in the business activity.
2) To formulate policies aimed at estabilising the level of business activity.
3) What are the methods to measure trend?
Ans) the following four methods are commonly used for measuring trends(i.e.,
long-term tendency of the data):
1) graphic (for freehand)
2) semi average.
3) Moving average.
4) Least-square.
6Q) Explain the meaning and importance of time series? Also explain
cyclical variations?
Ans) meaning:A time series is an arrangement of statistical data recorded with its time of
occurance . such data disclose the variation in the values of variable due to
changes of time.
The annual production of wheat in India, quarterly export of coffee,
monthly sales in a store rainfall (in cm) in different days, etc., are the data of time
series.
Importance:- Time series is series of data collected over a period of time
separated by successive time intervals. Technically, a time series is a
bivariate data set in which one variable is time and hence can be expressed
as:
TS = {(t, Yt) t is successive time when Ys were recorded}
The time series is employed for two basic purposes:
4) To study and characterize the past behaviour of data
5) To make a plausible forecast for the future
For illustration let ud look at a fundamental conceptual model of a product life
cycle through four stagesintroduction, growth, maturity and decline.
The sales performance of this product goes through these four stages
Characteristics:The graphical representation of a time series reveals (in most cases):
1) some movements exhibit (persistent) growth or decline.
2) Few movements are regular and periodic in nature not exceeding a year.
3) Again some are irregular and periodic exceeding a year.
4) Some irregular, mild or violent in movements.
(note: all the above movements may not occur at a time)
Thus a time series is the result of the above four types of movements. The four
components are as follows.
(i)Secular trend(T):-

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This is a smooth, regular and long-term upward or downward movement in the

data. It reveals the general tendency of gradual increase decrease over a long
period of time. The increase may be due to joint action of various factors like
changes of tastes and habits of people, population growth, development to new
techniques, etc. again the downward movement may be related to epidemics,
deaths due to availability of better and cheaper substitute or difficulty in getting
raw materials or decrease of demand,etc.
According to simpson and kalka, trend also called secular or long-trend, is the
basic tendency of series.to grow or decline over a period of time. The concept
of trend does not include short range oscillations, but rather the steady
movement over a long time.
(ii) seasonal variations:This is short-term periodic movement, where period is not longer than one year.
Most of the business activities have a slack and brisk periods every year, and
such periods are mostly related to the changing seasons (weather) orto holidays
or to social customs recurring with remarkable regularly after a period of time, not
exceeding a year. This kind of movement of data is conveniently termed as
seasonal variation.
(iii) cyclical variation(c):- this is another type of periodic movement where the
period is more than a year. The movements are oscillatory. One complete period
is called a cycle. In economic and business activities have four distinct phases:
Prosperity, decline, depression and recovery; they constitute the business cycle
and these four phases recur after a period of time longer then a year.
(iv) Irregular activity:Irregular variations are of a random nature and rise due to occasional factors
and change events like floods, drought, earthquakes and other natural
calamities, strikes, lockouts, etc.
7Q) How to measure periodic variations?
Ans) Periodic variations occur during smaller period of time intervals and cyclic
variations are therefore, local in nature and unlike secular trend repeat many
times during the entire period of observation.
Analysis of periodic variations involves primarily two stages:
1)characterizing the seasonal or cyclic pattern :method of simple average:
this method is applicable to the time series data having only
seasonal and random variations. Moreover, the data must be collected for
smaller periods (seasonal).averages computed so that the effect of
randomness is eliminated. Therefore, only seasonal variations are left in the
data. Seasonal variation is expressed In terms of seasonal index.
Following are the steps involved in method of simple average :
a) Averages are computed for each period of the year.
b) A grand seasonal average is obtained.
c) Seasonal index for a particular mouth is then obtained.

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d) The values are then adjusted accordingly

2) Deseasonilising the data

INDEX NUMBERS
1) what is meant by index numbers? What are its uses &
limitations of index numbers?
2) what are the types of index numbers?
3) what is the process of construction of index numbers?
4) what are the methods constructing index numbers?
5) what is meant by price relative method?
6) How to calculate aggregate Price Indexes?
7) What is consumer price index?
8) what is producer price index?
9) What are the methods of weighted average?
10) distinction between laspeyres and paasches index
numbers?
QUESTION & ANSWERS :-

1Q) what is meant by index numbers? What are its uses &
limitations of index numbers?
Ans) An index number is described as a specialized to measure the change in
a group of related variables over a period of time. These index numbers are
also known as barometers of economic activity. It offers a device of
estimating the relative changes of a variable when measurement of actual
changes is not possible.
In simplest form index numbers is a ratio of two numbers, expressed
as percentages. Any economic variable that we observe in daily life is subject
to change over time. These changes are expressed as index numbers.
Thus, index numbers are indicators which measure percentage changes in a
variable or a group of related variables over a specified period of time.
According to Spiegel :
An Index number is a statistical measure designed to show changes in
a variable or a group of variables with respect to Time, geographic location or
other characteristics such as Income, Profession etc.
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Dr. A.L. Bowley :

Index numbers are used to measure the changes in some quantity
which we can not observe directly.
Characteristics of index numbers:From definitions, important characteristics can be summarized :
1) Expressed in Percentage to measure the relative change; however sign
( %) is not used.
2) Absolute numbers (Free from units)
3) Specialized Averages (Averages are used to compare two or more series
which are expressed in the same units, however Indices can be used
when units are different)
4) Measure the effect of change over a period of time
5) Measure changes not capable of direct measurement
(Ex. Cost of Living, Price Level, Business activity etc.)
6) Tools to measure Relative Change
Uses of index numbers:1) As a Economic Barometers
2) Help us in framing suitable policies
3) Helpful in determining Trends and Tendencies
4) Useful in deflating
Limitations of index numbers:1. Since index numbers are based on samples, hence can not represent all
items.
2. Index numbers are constructed from deliberately selected samples which
may introduce errors. (Not Random sampling)
3. Approximate indicators
4. Quality is assumed to be same
5. A large numbers of methods are in practice, thus may result in different
values

5) Index numbers are used to measure the purchasing power of Money

2Q)what are the types of index numbers?

Ans) these are the four types of index numbers:-

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1) Price Index (Measures the changes in Prices of item between two points
of time)
9) Quantity Index (It measures the changes in physical volume of goods
produced or consumed)
10) Value Index (It measures the change in actual value between the base
and the given period)
11) Special Purpose Index (Consumer Price Index, PPI, Sensex, Dow Johns
Industrial Index etc. )

3Q) What is the process of construction of index numbers?

Ans)
1) Definition of Purpose (Objectives)
2. Selection of base period (Reference Point may be year, month)
3. Selection of numbers of items (Neither too small, nor too big)
4. Selection of source of data (Reliable, Correct, Relevant )
5. Price Quotation (Prices vary from place to place, shop to shop so
selection of cities, shops and persons for price quote)
6. Choice of an average
7. Selection of an appropriate Method

4Q) what are the methods constructing index numbers?

Ans)
1.
Simple Index Numbers (Un-weighted )
A. Price Relatives ( Simple Index Number)
B. Simple Aggregative Method
C. A simple average of price relatives
2. Composite Index Numbers (Weighted)
A. Weighted aggregate index
B. Laspeyres index
C. Paasche index

5Q)what is meant by price relative method?

Ans)
1) A price relative shows how the current price per unit for a given item
compares to a base period price per unit for the same item.

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2) A price relative expresses the unit price in each period as a percentage of

the unit price in the base period.
3) A base period is a given starting point in time.

Price relative in period t =

Price in period t
(100)
Base period price

Example: Besco Products

Price Relatives:The prices Besco paid for newspaper and television ads in 1992 and 1997
are shown below. Using 1992 as the base year, compute a 1997 price index
for newspaper and television ad prices.

Newspaper
Television

1992
$14,794
11,469

Price Relatives:Newspaper
I1997

1997

29,412
(100) 199
14,794

1997
$29,412
23,904

Television
I1997

1997

23,904
(100) 208
11,469

Television advertising cost increased at a greater rate.

Aggregate Price Indexes:1) An aggregate price index is developed for the specific purpose of
measuring the combined change of a group of items.
2) An unweighted aggregate price index in period t,denoted by It , is given by

It

P
P

it

(100)

i0

where
Pit = unit price for item i in period t
Pi0 = unit price for item i in the base period

6Q) How to calculate aggregate Price Indexes:With a weighted aggregate index each item in the group is weighted according to
its importance, which typically is the quantity of usage.

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Letting Qi = quantity for item i, the weighted aggregate price index in period t is
given by
Pit Qi (100)
It
Pi 0Qi
where the sums are over all items in the group.
When the fixed quantity weights are determined from the base-year usage, the
index is called a Laspeyres index.
When the weights are based on period t usage the index is a Paasche index.
Aggregate Price Indexes
Data on energy consumption and expenditures by sector for the city of Newton
are given below. Construct an aggregate price index for energy expenditures in
2000 using 1985 as the base year.
Quantity (BTU) Unit Price ($/BTU)
Sector
Residential
Commercial
Industrial
Transport.

1985
9,473
5,416
21,287
15,293

2000
8,804
6,015
17,832
20,262

1985
$2.12
1.97
.79
2.32

2000
$10.92
11.32
5.13
6.16

1. Unweighted Aggregate Price Index

I2000 = 10.92 + 11.32 + 5.13 + 6.16 (100) = 466
+ 1.97 + .79 + 2.32
2. Weighted Aggregate Index (Laspeyres Method)
I2000 = 10.92(9473) + . . . + 6.16(15293) (100) = 443
2.12(9473) + . . . + 2.32(15293)
3. Weighted Aggregate Index (Paasche Method)
I2000 = 10.92(8804) + . . . + 6.16(20262) (100) = 415
2.12(8804) + . . . + 2.32(20262)
4. The Paasche value being less than the Laspeyres indicates usage has increased
faster in the lower-priced sectors.

7Q) What is consumer price index?

1) Primary measure of the cost of living in US.
2) Based on 400 items including food, housing, clothing, transportation, and
medical items.
3) Weighted aggregate price index with fixed weights derived from a usage
survey.
4) Published monthly by the US Bureau of Labor Statistics.
5) Its base period is 1982-1984 with an index of 100.

8Q) what is producer price index?

1) Measures the monthly changes in prices in primary markets in the US.
1) Used as a leading indicator of the future trend of consumer prices and the
cost of living.

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2) Covers raw, manufactured, and processed goods at each level of

processing.
3) Includes the output of manufacturing, agriculture, forestry, fishing, mining,
gas and electricity, and public utilities.
4) Weighted average of price relatives using the Laspeyres method.

9Q) What are the methods of weighted average?

Ans) In order to overcome the problem of equal importance assigned to all items,
the method of assigning weights has been followed. The weighed aggregative
indices are expressed by assigning weights either basing on current year
quantities or base year quantities. This is considered to be the easiest way of
assigning weights. There are various methods of calculating weighted
aggregative indices. These are as follows:
(a) laspeyres method: In this method the base year quantities are taken as
Weights.
(b) paasches method: in this method current year quantities (Qn) are taken as
weights.
(c) marshall-edgeworth method: this method also considers both the current as
well as base year prices and quantities. This price index number uses
arithmetic mean of base and current year quantities for weights to derive.
(d) fishers ideal method: this price index number uses geometric mean of base
and current year quantities for weights to derive this formula.
(e) Dorbish and bowley index.
(f) walsh index.

10Q) distinction between laspeyres and paasches index numbers?

Ans)
The essential difference between laspeyres and paasches index in the
package of commodities that are considered as weights. The laspeyres index is
obtained by referring to base year quantities as weights. The paasches index
results when we relate current year values with the base year values with
reference to current year quantities.
An interesting point of laspeyres and paasches indices is that the
former is generally expected to overestimate or leave an upward bias, where as
the latter tends to under estimate and shows a downward bias.

PROBABILITY THEORY
1Q)what is the classification definition of probability?
2Q)Find the probability of getting a head when a coin is tossed once. Also

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find the probability of getting a tail?

3Q) One card is drawn from a well-shuffled deck of 52 cards. Calculate the
probability that the card will
(i) be an ace,
(ii) not be an ace.
4Q)A box contains 3 blue, 2 white, and 4 red marbles. If a marble is drawn
at random from the box, what is the probability that it will be
(i) white? (ii) blue? (iii) red?
5Q)A carton consists of 100 shirts of which 88 are good, 8 have minor
defects and 4 have major defects. Jimmy, a trader, will only accept the
shirts which
are good, but Sujatha, another trader, will only reject the shirts which have
major
defects. One shirt is drawn at random from the carton. What is the
probability that
(i) it is acceptable to Jimmy?
(ii) it is acceptable to Sujatha?
6Q) What is conditional probability?

7Q) Define conditional probability?

8Q) what are the properties of conditional probability?
9Q)Bag I contains 3 red and 4 black balls while another Bag II contains 5
red and 6 black balls. One ball is drawn at random from one of the bags
and it is found to be red. Find the probability that it was drawn from Bag II.
10Q)what is the definition of random variables?
11Q) what is meant by Random Variables and its Probability Distributions
12Q) A bag contains 2 white and 1 red balls. One ball is drawn at random
and then put back in the box after noting its colour. The process is
repeated again. If X denotes the number of red balls recorded in the two
draws, describe X.
13Q) what is Bernoulli Trials and Binomial Distribution
14Q) define Binomial distribution?
15Q) Characteristics of binomial distribution?
16Q) what is poisson distribution? What are its characteristics?
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17Q) what is normal distribution?

QUESTION & ANSWERS :1Q)what is the classification definition of probability?

Ans) The theoretical probability (also called classical probability) of an event
E,written as P(E), is defined as
Classical definition of probability was coined by Bernoulli. This definition takes
the conditions of the random experiment into consideration while assigning
probabilities to events. For this reason it is also referred to as a priori definition of
probability.
If a random experiment results into equally likely, mutually excusive and
exhaustive outcomes, with S as its sample space, then probability of an event E
is given by:
P(E) =

Number of outcomes favourable to E

Number of all possible outcomes of the experiment
Probability is a measure of likelihood and can be stated as a percentage, a ratio
or more usually as a number from 0 to 1.

Important models in probability:2Q)Find the probability of getting a head when a coin is tossed once. Also
find the probability of getting a tail.
Solution : In the experiment of tossing a coin once, the number of possible
outcomes
is two Head (H) and Tail (T). Let E be the event getting a head. The number
of
outcomes favourable to E, (i.e., of getting a head) is 1. Therefore,
P(E) = P (head) = Number of outcomes favourable to E = 1
Number of all possible outcomes
2
Similarly, if F is the event getting a tail, then
P(F) = P(tail) = 1
2
3Q) One card is drawn from a well-shuffled deck of 52 cards. Calculate the
probability that the card will
(i) be an ace,
(ii) not be an ace.
Solution: Well-shuffling ensures equally likely outcomes.
(i) There are 4 aces in a deck. Let E be the event the card is an ace.

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The number of outcomes favourable to E = 4

The number of possible outcomes = 52 (Why ?)
Therefore, P(E) = 4 = 1
52 13
(ii) Let F be the event card drawn is not an ace.
The number of outcomes favourable to the event F = 52 4 = 48 (Why?)
The number of possible outcomes = 52
Therefore, P(F) =48 = 12
52 13
4Q)A box contains 3 blue, 2 white, and 4 red marbles. If a marble is drawn
at random from the box, what is the probability that it will be
(i) white? (ii) blue? (iii) red?
Solution : Saying that a marble is drawn at random is a short way of saying that
all the
marbles are equally likely to be drawn. Therefore, the
number of possible outcomes = 3 +2 + 4 = 9 (Why?)
Let W denote the event the marble is white, B denote the event the marble is
blue
and R denote the event marble is red.
(i) The number of outcomes favourable to the event W = 2
So,
P(W) = 2
9
Similarly, (ii) P(B) = 3 = 1 and (iii) P(R) = 4
9
3
9
Note that P(W) + P(B) + P(R) = 1.
5Q)A carton consists of 100 shirts of which 88 are good, 8 have minor
defects and 4 have major defects. Jimmy, a trader, will only accept the
shirts which
are good, but Sujatha, another trader, will only reject the shirts which have
major
defects. One shirt is drawn at random from the carton. What is the
probability that
(i) it is acceptable to Jimmy?
(ii) it is acceptable to Sujatha?
Solution : One shirt is drawn at random from the carton of 100 shirts. Therefore,
there are 100 equally likely outcomes.
(i) The number of outcomes favourable (i.e., acceptable) to Jimmy = 88 (Why?)
Therefore, P (shirt is acceptable to Jimmy) = 88 = 0.88
100
(ii) The number of outcomes favourable to Sujatha = 88 + 8 = 96 (Why?)
So, P (shirt is acceptable to Sujatha) = 96 = 0.96
100

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6Q) What is conditional probability?

Ans)
Consider the experiment of tossing three fair coins. The sample space of the
experiment is
S = {HHH, HHT, HTH, THH, HTT, THT, TTH, TTT}
Since the coins are fair, we can assign the probability 1/8 to each sample point.
Let E be the event at least two heads appear and F be the event first coin
shows tail.
Then
E = {HHH, HHT, HTH, THH}
and
F = {THH, THT, TTH, TTT}
Therefore
P(E) = P ({HHH}) + P ({HHT}) + P ({HTH}) + P ({THH})
= 1+1+1+1=1
8 8 8 8 2
(Why ?)
and
P(F) = P ({THH}) + P ({THT}) + P ({TTH}) + P ({TTT})
=1+1+1+1=1
8 8 8 8 2

Also
E F = {THH}
With
P(E F) = P({THH}) = 1
8
Thus, Probability of E considering F as the sample space = 1
4
,
or
Probability of E given that the event F has occurred = 1
4
This probability of the event E is called the conditional probability of E given
that F has already occurred, and is denoted by P (E|F).
Thus P(E|F) =1
4
Note that the elements of F which favour the event E are the common elements
of E and F, i.e. the sample points of E F.
Thus, we can also write the conditional probability of E given that F has occurred
as

P(E|F) =

Number of elementaryeventsfavourable to E F
Number of elementaryeventswhich arefavourable to F
= (E F)
(F)
Dividing the numerator and the denominator by total number of elementary
events of the sample space, we see that P(E|F) can also be written as
P(E|F) = n(E F)
n(S) = P(EF)
n(F)
P(F)
n(S)
... (1)

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7Q) Define conditional probability?

Ans) Thus, we can define the conditional probability as follows :
Definition 1 If E and F are two events associated with the same sample space of
a random experiment, the conditional probability of the event E given that F has
occurred, i.e. P (E|F) is given by
P(E|F) =

P(E F)
P(F)

provided P(F) 0

8Q) what are the properties of conditional probability?

Ans) (note: this symbol is union )
Let E and F be events of a sample space S of an experiment, then we have
Property 1:- P (S|F) = P(F|F) = 1
We know that
P(S|F) = P(S F) = P(F) = 1
P(F)
P(F)
Also
P(F|F) = P(F F) = P(F) = 1
P(F)
P(F)
Thus
P(S|F) = P(F|F) = 1
Property 2 If A and B are any two events of a sample space S and F is an event
of S such that P(F) 0, then
P((A B)|F) = P(A|F) + P(B|F) P ((A B)|F)
In particular, if A and B are disjoint events, then
P((AB)|F) = P(A|F) + P(B|F)
We have
P((AB)|F) = P[(AB) F]
P(F)
=P[(A F) (B F)]
P(F)
(by distributive law of union of sets over intersection)
= P(A F)+P(B F)P(A B F)
P(F)
= P(A F)+P(B F)_P[(A B) F]
P(F)
P(F)
P(F)
= P(A|F) + P(B|F) P ((AB)|F)
When A and B are disjoint events, then
P((A B)|F) = 0
=
P((A B)|F) = P(A|F) + P(B|F)

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Property 3
P(E|F) = 1 P (E|F)
From Property 1, we know that P (S|F) = 1
= P(E E|F) = 1
since S = E E
= P(E|F) + P (E|F) = 1
since E and E are disjoint events
Thus,
P(E|F) = 1 P(E|F)

9Q)Bag I contains 3 red and 4 black balls while another Bag II contains 5
red and 6 black balls. One ball is drawn at random from one of the bags
and it is found to be red. Find the probability that it was drawn from Bag II.
Solution Let E1 be the event of choosing the bag I, E2 the event of choosing the
bag II
and A be the event of drawing a red ball.

Then

P(E1) = P(E2) =1
2
Also
P(A|E1) = P(drawing a red ball from Bag I) = 3
7
and
P(A|E2) = P(drawing a red ball from Bag II) = 5
11
Now, the probability of drawing a ball from Bag II, being given that it is red,
is P(E2|A)
By using Bayes' theorem, we have

P(E2|A) =
P(E2 )P(A|E2 )
P(E )P(A|E )+P(E )P(A|E )

= 1/2 x 5/11
= 35
1/2 x 3/7 x 1/2 x5/11
68

10Q)what is the definition of random variables?

Ans)
A random variable is a real valued function whose domain is the sample
space of a random experiment. For example, let us consider the experiment of
tossing a coin two times in succession.
The sample space of the experiment is S = {HH, HT, TH, TT}.
If X denotes the number of heads obtained, then X is a random variable and for
each outcome, its value is as given below :
X(HH) = 2, X (HT) = 1, X (TH) = 1, X (TT) = 0.
More than one random variables can be defined on the same sample space. For
example, let Y denote the number of heads minus the number of tails for each
outcome of the above sample space S.
Then
Y(HH) = 2, Y (HT) = 0, Y (TH) = 0, Y (TT) = 2.
Thus, X and Y are two different random variables defined on the same sample
space S.

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11Q) what is meant by Random Variables and its Probability Distributions

Ans) We have already learnt about random experiments and formation of sample
spaces. In most of these experiments, we were not only interested in the
particular outcome that occurs but rather in some number associated with that
outcomes as shown in following
examples/experiments.
(i) In tossing two dice, we may be interested in the sum of the numbers on the
two dice.
(ii) In tossing a coin 50 times, we may want the number of heads obtained.
558 MATHEMATICS
(iii) In the experiment of taking out four articles (one after the other) at random
from a lot of 20 articles in which 6 are defective, we want to know the
number of defectives in the sample of four and not in the particular sequence
of defective and nondefective articles.
12Q) A bag contains 2 white and 1 red balls. One ball is drawn at random
and then put back in the box after noting its colour. The process is
repeated again. If X denotes the number of red balls recorded in the two
draws, describe X.
Solution
Let the balls in the bag be denoted by w1, w2, r. Then the sample space is
S = {w1 w1, w1 w2, w2 w2, w2 w1, w1 r, w2 r, r w1, r w2, r r}
Now, for S
X() = number of red balls
Therefore
X({w1 w1}) = X({w1 w2}) = X ({w2 w2}) = X({w2 w1}) = 0
X({w1 r}) = X({w2 r}) = X ({r w1}) = X ({r w2}) = 1 and X ({r r}) = 2
Thus, X is a random variable which can take values 0, 1 or 2.
13Q) what is Bernoulli Trials and Binomial Distribution
Ans) Many experiments are dichotomous in nature. For example, a tossed coin
shows a head or tail, a manufactured item can be defective or non-defective,
the response to a question might be yes or no, an egg has hatched or not
hatched, the decision is yes or no etc. In such cases, it is customary to call
one of the outcomes a success and the other not success or failure. For
example, in tossing a coin, if the occurrence of the head is considered a success,
then occurrence of tail is a failure.
Trials of a random experiment are called Bernoulli trials, if they satisfy
the following conditions :
(i) There should be a finite number of trials.

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(ii) The trials should be independent.

(iii) Each trial has exactly two outcomes : success or failure.
(iv) The probability of success remains the same in each trial.
For example, throwing a die 50 times is a case of 50 Bernoulli trials, in which
each trial results in success (say an even number) or failure (an odd number)
and the probability of success (p) is same for all 50 throws. Obviously, the
successive throws of the die are independent experiments. If the die is fair and
have six numbers 1 to 6
written on six faces, then p = 1 and q = 1 p = 1 = probability of failure.
2
2
14Q) define Binomial distribution?
Ans) Binomial distribution is one of the simplest and yet extremely useful
theoretical distribution of discrete random variable. It was discovered by
J.Bernoulli. binomial distribution is probability distribution expressing the
probability of experiments that results into only two out comes- success and
filure.
Consider the experiment of tossing a coin in which each trial results in
success (say,heads) or failure (tails). Let S and F denote respectively success
and failure in each trial. Suppose we are interested in finding the ways in which
we have one success in six trials.
Clearly, six different cases are there as listed below:
SFFFFF, FSFFFF, FFSFFF, FFFSFF, FFFFSF, FFFFFS.
Similarly, two successes and four failures can have 6! combinations. It will be
4!2!
lengthy job to list all of these ways.
15Q) Characteristics of binomial distribution:16Q) what is poisson distribution? What are its characteristics?
Ans) Mostly poission distribution is used in queuing theory. It was developed by
simeon Denis Poisson (1781-1840). The distribution is used to describe the
behaviour of rare events. For example number of derailed per day, number of
printing mistake in a book etc.,
Thus, when p (probability of an event) is extremely) small and n
(the number of trails) is very large such that their product np=m is aconstant, then
the random variable follows the poisson distribution.
Mean and variance of poisson Distribution:We know since p is very small in poisson distribution the value of q is almost
equal to 1. so, we can put 1 in place of q in the contents of binomial distribution.
We will focus on mean, standard deviation or variance.
Characteristics of poisson distribution:a) it is a discrete distribution and is a limiting form of the binomisal
distribution when n is large and p or q is small.
b) Mean and variance are equal.
c) Is usually definitely positively skewed but cannot be negatively
skewed

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d) As n becomes very large the poisson distribution approximates to

the normal distribution
e) The mean = np
17Q) what is normal distribution?
Ans) Till recently we have been making curves which illustrated some of the
forms that a frequency distribution may assume. These curves were based upon
data of a few tens or hundreds of cases; each was a sample drawn from a much
larger, possibly infinite, universe.
Being a sample, a given curve would not necessarily have exactly
the same shape of the curve for the universe, but if the sample if properly
selected, the curve for the sample will tend to be of the same general shape as
the curve for the universe.
The normal curve represents a distribution of values that may
occur, under certain conditions, when change is given full play. In every case the
necessary conditions include the existence of a large number of causes, each
operating independently in a random manner.

Theory of Estimation and Test of Hypothesis

1Q) Define theory of estimation?
Ans)
2Q) what is point estimation ?
Ans) it is also called as properties of good estimators. There can be more than
one estimators of a population parameter. Therefore, it becomes necessary to
determine a good estimator out of a number of available estimators.
We may recall that an estimator, a function of random variables
X1,X2,X3,Xn, is a random variable. Therefore, we can say that a good
estimator is one whose distribution is more concentrated around the population
parameter. R.A.Fisher has given the following properties of a good estimators
these are :
a) unbiased ness
b) consistency
c) efficiency
d) sufficiency
2Q) what are the methods of point estimation?
Ans) given various criteria of a good estimator, the next logical step is to obtain
an estimator possessing some or all of the above properties.
There are several methods of obtaining a point estimator of the population
parameter. For example, we can use the method of maximum likelihood, method
of least squares, method of minimum variance, method of minimum X square,
method of movements etc., we shall, however, use the popular method of
maximum likelihood.
3Q) what is meant by interval estimation?

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Ans) using point estimation, it is possible to provide a single quantity as an

estimator of a parameter. Any point estimator, even it is satisfy all the
characteristics of a good estimator, has a limitation that it provides no
information about the magnitude of errors due to sampling. This problem is
taken care of by the method of interval estimation, that gives a range of the
estimator of the parameter.
This method of interval estimation is based upon the sampling
distribution of an estimator. The standard error of the estimator is used in the
construction of an interval so that the probability of the parameter lying with in the
interval can be specified .
Given random sample of n observations X1, X2,Xn, we can find two
values L1 and L2 such that the probability of population parameter theta lying
between L1 & L2 is (say) n. using symbols.
Such an interval is termed as confidence interval for theta and the two limits L1 &
L2 are termed as confidential or fiducial limits.
4Q) define chi-square testing?
Ans) we have already the tests of significance when sample sizes are large. But
when sample size is sample distribution of the statistic t as Z = t E(t)
SE(t)
This distribution is not normal and hence normal test cannot be applied in such
cases. for such cases, we apply sample tests depending on the sample size n.
the square of a standard normal variable is called a chi-square variate. With 1
degree of freedom. Thus if X is a random variable following a normal distribution
with mean mue and standard deviation sigma, then the square of the normal
variate is a chi-square (written as x square, greek alphabet) variate with 1 degree
of freedom.
Application of x square distribution:This distribution can be used for the following usage.
1) x square-test of goodness of Fit.
2) X square-test for independence of attributes.
3) To test if the population has a specified value of the variance sigma
square.

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