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Topic: Random Variables

1. The time required for servicing transmissions is normally distributed with


= 45 min and = 8 min. The service manager plans to have work begin
on the transmission of a customers car 10 min after the car is dropped of
and the customer is told that the car will be ready within 1 hour from
drop-of. What is the probability that the service manager cannot meet his
commitment?

A.
B.
C.
D.

0.3875
0.2676
0.5
0.6987

2. The current age (in years) of 400 clerical employees at an insurance


claims processing center is normally distributed with mean 38 and SD 6.
For each statement below, please specify True/False. If false, briefly
explain why.

A. More employees at the processing center are older than 44 than


between 38 and 44.
B. A training program for employees under the age of 30 at the center
would
be expected to attract about 36 employees.
Consider a company that has two diferent divisions. The annual profits from
the two divisions are independent and have distributions Profit1 ~ N(5, 3 2)
and Profit2 ~ N(7, 42) respectively. Both the numbers are in $ Million. Answer
the following questions about the total profit of the company in Million
Rupees. Assume that $1 = Rs. 45

3. Specify a range centered on the mean such that it contains 95%


probability for the annual profit of the company.
A. [169,911]
B. [99,981]
C. [340,740]
D. [-135,1215]

4. Specify the 5th percentile of profit (in Rupees) for the company
A. 170
B. 240
C. 310
D. 380
5. Which of the two divisions has a larger probability of making a loss in a
given year?
A. Division 1

B. Division 2
C. Both have equal chance
D. Cannot be determined
Topics: Sampling Variation and Central Limit Theorem
1) The manager of a warehouse monitors the volume of shipments made by

the delivery team. The automated tracking system tracks every package
as it moves through the facility. Based on current contracts with
customers, the weights should have = 22 lbs. and = 5 lbs. A sample of
25 packages is selected and weighed every day. Suppose the manager is
analyzing data of daily averages for a period of 100 days. What is the
approximate standard deviation of these data?
A. 5
B. 1
C. 0.5
D. 0.25

2) An educational startup that helps MBA aspirants write their essays is


targeting individuals who have taken GMAT in 2012 and have expressed
interest in applying to FT top 20 b-schools. There are 40000 such
individuals with an average GMAT score of 720 and a standard deviation of
120. The scores are distributed between 650 and 790 with a very long and
thin tail towards the higher end resulting in substantial skewness. Which
of the following is likely to be true for randomly chosen samples of
aspirants?
a. The standard deviation of the scores within any sample will be 120.
b. The standard deviation of the mean of across several samples will
be 120.
c. The mean score in any sample will be 720.
d. The average of the mean across several samples will be 720.

3) At the beginning of your stay at ISB, you started a YouTube channel to host
videos of your b-school life so that your friends and family can remain
connected with you. You posted a total of 240 videos, roughly one for
every working day. You are analyzing the data dump available from Google
Analytics at the end of the year. Among your 500 Facebook friends, who
subscribed to your channel, the average number of views is 25 with a
standard deviation of 50. Google Analytics allows you to choose a random
sample of 25 friends and send them an online gaming credit for every
view of your channel as a token of appreciation. What is the approximate
probability that you will shell out less than 20 credits?
1. 30%
2. 6%
3. 0%
4. 1.25%

4) Auditors at a small community bank randomly sample 100 withdrawal

transactions made daily at an ATM machine located near the banks main
branch. Over the past 2 years, the average withdrawal amount has been
$50 with a standard deviation of $40. Since audit investigations are
typically expensive, the auditors decide to not initiate further
investigations if the mean transaction amount of the sample is between
$45 and $55. What is the probability that in any given week, there will be
an investigation?
C. 1.25%
D. 2.5%
E. 10.55%
F. 21.1%

5) The auditors from the above example would like to maintain the
probability of investigation to 5%. Which of the following represents the
minimum number transactions that they should sample if they do not
want to change the thresholds of 45 and 55?
A. 144
B. 150
C. 196
D. 250

Topics: Sampling and Confidence Intervals


1) For each of the following statements, indicate whether it is True/False. If
false, explain why.

a) The sample size of the survey should at least be a fixed percentage of


the population size in order to produce representative results.

b) The sampling frame is a list of every item that appears in a survey


sample, including those that did not respond to questions.

c) Larger surveys convey a more accurate impression of the population


than smaller surveys.
2) PC Magazine asked all of its readers to participate in a survey of their
satisfaction with diferent brands of electronics. In the 2004 survey, which
was included in an issue of the magazine that year, more than 9000
readers rated the products on a scale from 1 to 10. The magazine
reported that the average rating assigned by 225 readers to a Kodak
compact digital camera was 7.5. For this product, identify the following:

a) The population
b) The parameter of interest
c) The sampling frame

d) The sample size


e) The sampling design
f) Any potential sources of bias or other problems with the survey or
sample
3) For each of the following statements, indicate whether it is True/False. If
false, explain why.

1. If the 95% confidence interval for the average purchase of customers


at a department store is $50 to $110, then $100 is a plausible value for
the population mean at this level of confidence.

2. If the 95% confidence interval for the number of moviegoers who

purchase concessions is 30% to 45%, this means that fewer than half
of all moviegoers purchase concessions.

3. The 95% Confidence-Interval for only applies if the sample data are
nearly normally distributed.
4) What is the chance that mean of a random sample will be greater than
the mean of the population from which the sample is collected?
i) 0.25
j) 0.5
k) 0.75
l) 1
5) A book publisher monitors the size of shipments of its textbooks to
university bookstores. For a sample of texts used at various schools, the
95% confidence interval for the size of the shipment was 250 45 books.
Which, if any, of the following interpretations of this interval are correct?

G. All shipments are between 205 and 295 books.


H. 95% of shipments are between 205 and 295 books.
I. The procedure that produced this interval generates ranges that
hold the population mean for 95% of samples.

J. If we get another sample, then we can be 95% sure that the mean
of this second sample is between 205 and 295.
K. We can be 95% confident that the range 160 to 340 holds the
population mean.

Topics: Hypothesis testing


1) For each of the following statements, indicate whether it is True/False. If
false, explain why.
The average purchase amount at a retailers online site is $80. The retailer
is evaluating a new design for its website that, it hopes, would encourage
shoppers to spend more. Let represent the average amount spent per
customer at its redesigned website.

d) The appropriate null hypothesis for testing the profitability of the new
design is H0: 80.
e) If the p-value of the test is less than , then we will always commit a
Type II error.
f) If the p-value of the test is less than , then we will always commit a
Type I error.
2) For each of the following statements, indicate whether it is True/False. If
false, explain why.
An accounting firm is considering ofering investment advice in addition to
its current focus on tax planning. Its analysis of the costs and benefits of
adding this service indicates that it will be profitable if 40% or more of its
current customer base use it. The firm plans to survey its customers. Let
denote the proportion of its customers who will use this service if ofered
and let p denote the percentage who say they will use this service in the
survey. The firm plans to run a test with the following hypotheses, H 0:
0.4; HA: > 0.4 and = 5%.

g) If H0 is true, then any sample will have a sample proportion (p) less than
0.40.
h) The p-value of the test of the null hypothesis in this example is the
probability that the investment service will be profitable.

3) Banks frequently compete by adding special services that distinguish


them from rivals. These services can be expensive to provide. A bank
hopes to retain customers that keep high balances in accounts with low
interest rates. Typical customers at this bank keep an average balance of
$3,500 in savings accounts that pay 2% interest annually. The bank loans
this money to other customers at an average rate of 6%, thereby earning
a 4% profit on these balances. A random sample of 65 customers was
ofered a special personalized account. After 3 months, the average
balance in the 2% savings accounts for these customers was $5,000 (s =
$3,000). The personalized service costs the bank $50 extra per customer
per year over the costs of a normal savings account. Is this personalized
account ofering going to be more profitable than the normal savings
account?

i)
j)
k)
l)

State the null and alternative hypotheses. Describe the parameters.


Describe Type I and Type II errors in this context.
What is the necessary sample size to use a t-test?
Find the p-value of the test. Do the data reject the null hypothesis at
= 0.05. (Assume that the data meet the sample size condition.)

4) The weights of the cereal boxes follow a normal distribution with mean
16.3 oz and std dev 0.2 oz. Suppose the manager decides to stop the
packaging process and conduct an investigation if a cereal box with
weight lower than 15.9 oz is observed. What is the probability of Type I
error with this decision rule?
a. 0.0125
b. 0.025
c. 0.05
d. 0.10
5) Auditors at a small community bank randomly sample 100 withdrawal
transactions made daily at an ATM machine located near the banks main
branch. Over the past 2 years, the average withdrawal amount has been
$50 with a standard deviation of $40. Since audit investigations are
typically expensive, the auditors decide to not initiate further
investigations if the mean transaction amount of the sample is between
$45 and $55. Suppose that the mean transaction amount of the sample is
found to be $70, and consequently an investigation is held. However, no
reasons for the increase in withdrawal size are uncovered. This means
that:
e. The auditors commit a Type I error
f. The auditors commit a Type II error
g. Since no problems are uncovered, there is no error
d. Since the mean transaction amount is higher than $55, there
is no error