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IMBA 2010

Business Statistics Assignment 1


MBA 31
Team: Atalay Hazar, Konovalova Tatiana, Yussupova Nigara.
Exercise #1.

How much Salary are Baseball players Making?

For this exercise we took the data from USAToday.com website. We are
considering the salary for 2009 year of one of the teams in the National
Baseball League - the Colorado Rockies .

In the Table 1.1 we show the salary distribution of the team for 2009 year. The
Table 1.2.illustrates the highest, the lowest , the mean and the median
team salary.

Table 1.1.
Names Salary, US$ Position
Atkins, Garrett 7 050 000 Third Baseman
Baker, Jeff 415 000 Second Baseman
Barmes, Clint 1 625 000 Shortstop
Buchholz, Taylor 1 055 000 Pitcher
Cook, Aaron 9 375 000 Pitcher
Corpas, Manuel 750 000 Pitcher
de la Rosa, Jorge 2 000 000 Pitcher
Embree, Alan 2 000 000 Pitcher
Fowler, Dexter 401 000 Outfielder
Francis, Jeff 3 750 000 Pitcher
Grilli, Jason 800 000 Pitcher
Hawpe, Brad 5 500 000 Outfielder
Helton, Todd 16 600 000 First Baseman
Iannetta, Chris 415 000 Catcher
Jimenez, Ubaldo 750 000 Pitcher
Marquis, Jason 9 875 000 Pitcher
Morales, Franklin 402 000 Pitcher
Morillo, Juan 401 000 Pitcher
Quintanilla, Omar 408 000 Second Baseman
Rusch, Glendon 750 000 Pitcher
Smith, Seth 403 000 Outfielder
Speier, Ryan 407 000 Pitcher
Spilborghs, Ryan 415 000 Outfielder
Stewart, Ian 404 000 Third Baseman
Street, Huston 4 500 000 Pitcher
Torrealba, Yorvit 3 750 000 Catcher
Tulowitzkii, Troy 1 000 000 Shortstop

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As we can see from the main descriptors the shape of the distribution is
positively right -skewed because in our case the mean is greater than median.

There are few high salaries which tend to increase the mean, so we’d prefer to
use median which remains unaffected by the large salaries. In the Box-Whisker
Plot (Graph 1.1.) we observe the extreme outlier is the player with the salary of
$ 16 600 000, which is also the maximum salary as well as two other high
outliers. Almost all the salary distribution is inside 3rd quartile.

Table 1.2. Graph 1.1.

One
Colorado
Variab
Rockies
le
Salary,
Summ
2009
ary
Mean 2785222,22
Varian 152531162
ce 56410,30
Std.
3905523,81
Dev.
Skewn
2,2330
ess
Kurtosi
8,2933
s
Media
800000,00
n
Mean
Abs. 2823572,02
Dev.
Mode 415000,00
Minim
401000,00
um
Maxim 16600000,0
um 0
Range 16199000,00
Count 27
Sum 75201000,00
1st
Quartil 408000,00
e
3rd
Quartil 3750000,00
e
Interqu
artile 3342000,00
Range

We also used other descriptors for our observation.


First we calculated the variance which measures the variability from the mean. It’s
1,52531E+13 and the standard deviation is $ 3 905 524 is the square root of the variance it
measures the dispersion of a set of data from the mean. The more spread data the higher is the
deviation.

1. As we can see in the Graph 1.2. the shape of the histogram is positively
right skewed.
2
Graph 1.2.
Table 1.3.

Bin Midpoint Freq.


1750916,
In addition we compared Colorado Rockies team salary 67 19
observation with that of other teams. We took NY 4450750,
Yankees (Table 1.4.), Detroit Tigers (Table 1.5.) 00 4
and Pittsburgh Pirates (Table 1.6.). According to 7150583,
33 1
our observations other teams have similar results: the
9850416,
shape of the distribution is positively right 67 2
skewed, there is a big difference from the 12550250
lowest and the highest salary, the mean is much ,00 0
greater than the median. From the four chosen
teams the highest paid players are in NY Yankees team when we compare
the mean and the median of each team.

NY Yankees, salary 2009.

One Variable 2009/NY Yankees


Bin Midpoint Freq.
Summary salary
3116666,67 15
Mean 7748045,73
8550000,00 2
Variance 73898238341231,90
13983333,33 6
Std. Dev. 8596408,46 19416666,67 2
1,2856 24850000,00 0
Skewness
30283333,33 1
Kurtosis 4,3817
Median 5000000,00
Mean Abs. Dev. 7029100,19
Mode 13000000,00
Minimum 400000,00
Maximum 33000000,00
Range 32600000,00
Count 26
Sum 201449189,00

Table 1.4.

Detroit Tigers, salary 2009.


Table 1.5.

3
One Variable 2009/Detroit Tigers
Summary salary
Mean 4110183,75
Variance 23677189841786,00
Std. Dev. 4865921,27
Skewness 1,6854
Kurtosis 5,3464
Median 2200000,00
Mean Abs. Dev. 3643785,09
Mode 400000,00
Minimum 400000,00
Maximum 18971596,00
Range 18571596,00
Count 28
Sum 115085145,00

Pittsburgh Pirates, salary 2009.

One Variable 2009/Pittsburgh


Summary Pirates salary
Mean 2015942,31
Variance 4346987986538,46
Std. Dev. 2084943,16
Skewness 1,5542
Kurtosis 4,7137
Median 1300000,00
Mean Abs. Dev. 1533433,43
Mode 401500,00
Minimum 400000,00
Maximum 7400000,00
Range 7000000,00
Count 26
Sum 52414500,00

Table 1.6.

The data we took is random because each team in the database has the
same probability to be chosen. But we think that the sample is dependent
because the salaries in this sport depend on the position of the players and
their performance.
Considering the random sample from the population of all MLB teams we
need to find out if the average salary of a player is different from $
1 000 000. We assume that the distribution is normal according to the
Central limit theorem and we have a large data. In this case we need to
define the interval estimate of a population mean or confidence bounds.
Since we don’t know population standard deviation we will use t

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distribution or σ unknown case. For the finding interval estimates we
consider the following formula
x ± t( α)/2 Sn
Where x is our sample mean, t( α)/2 is the t value providing the area of α/2
in the upper tail of the distribution with n-1 degree of freedom, with 95%
confidence interval. Our sample size is 107 players
with the degree of freedom 106. After making the calculations we get:
MEAN = $ 4 150 933
Estimated STANDARD DEVIATION = $ 5 744 016,01
t( α)/2 = 1,9826
With these parameters we found the Upper Bound which is $3 050 007 and the
Lower Bound which is $ 5 251 859.
So we are 95% confident that the average salary of the baseball player is
different from $ 1 000 000, because$ 1 000 000 is not in our estimated interval.
The average salary of the player is between the interval of $3 050 007 and $ 5
251 859.

Exercise №2

In the Exercise №2 we made the one step to the hedging. For doing this we went
to the site of the Monetary Authority of Singapore and found different exchange
rates.
We asked for rates from January 2000 to April 2010, in a monthly format, of the
Singapore Dollar versus Pound Sterling. The valueas are end-of-period. In the
Table 2.1. there exchenge rates for last 4 monthes. The last one is the exchenge
rate at the end of the April equals to 2,1003.
Table 2.1.
S$ Per Unit of Pound
Period
Sterling

2010 Jan 2,2677


Feb 2,1516
Mar 2,1143
Apr 2,1003
Basing on full table of the exchange rates we drown the Graph 2.1. It provides us
with the graphic information of exchange rate’s fluctuation between 2000 and
2010.
Graph 2.1.

For our observation we had calculated the mean and standard deviation
assuming that exchange rates are independent and normally distributed.
MEAN = 2,7496
STANDART DEVIATION = 0,281

5
These numbers show the average exchange rate during the pointed years and
also it’s standard deviation between monthly distributed exchange rates.
a) The next step was to calculate the probability that rates would be above
more than 5% higher than the last observation. We’d found the next
probable rate level by multiplying the April rate on 1,05.
5 % above rate = 2,2053
For this rate we calculated normal distribution. It would show us the probability
that rates will be above more than 5% higher than the last observation. But the
key word here is above. So, we used this formula for probability:
Probability = 1 – Normal Distribution.
Probability = 0,9736
This means that the probability of that the rate for May will be above the April’s
on 5 % is 0,9736 or 97,36 %.
b) Then we counted the probability that rates will be less than 5% lower than
the last observation.
In this case the right formula is:
Probability = Normal distribution
Probability = 0,00364
It means that the probability that next rate will be less than 5 % lower is very
small.

When we look at the profitability of business based on 10% range in either


direction, we have to calculate 10 % more and 10% less from the last
observation. Last Observation + 10 % = 2.31033
Last Observation – 10 % = 1.89027
Now we can calculate with the excel, what is the probability of the rate,
between 2.31033 and 1.89027 for the next month. If we subtract these two
probabilities, we will have the probability of staying at the +10 % and -10 %
range.

Probability of staying under 2.31033 = 0.05904


Probability of staying under 1.89027 = 0.00111
Probability of being between the range = 0.05792 (Appr. 5.8 %)

This means the rate is more likely to be out of this range ( 94% ). This is
because our last observation is very far from the mean with respect to the
standard deviation. (More than 2 sigma)
P.S.: If our last observation was the same as the mean, the rate staying between
+10 % and – 10 % would be 67 %.
In the normal distribution, highest point on the curve is at the mean, which
is also the median and the mode of the distribution. The median for our data is
2,7712 while the mean is 2,7496 and also these numbers are very close to each
other but far from the mode. Even though our mean and median are close to
each other the shape of the graph shows us the distribution is not normal the
graph is left – skewed, the skewness measure is -0.6017.

One Variable exchange


Summary rate
Mean 2,7496
Variance 0,0790
Std. Dev. 0,2810

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Skewness -0,6017
Kurtosis 2,5376
Median 2,7701
Mean Abs.
Dev. 0,2312
Mode 2,3153
Minimum 2,0769
Maximum 3,1742
Range 1,0973
Count 124
Sum 340,9459
1st Quartile 2,5775
3rd Quartile 2,9991
The normal distribution symmetric, with the shape of the normal curve to the left
of the mean a mirror image of the shape of the normal curve to the right of the
mean. In addition to that, the normal distribution is not skewed; it’s
skewness measure is zero.

Since we consider the exchange rate in the sample we think that the data is
dependent. Because the current day exchange rate is dependent on the trades of
the exchange rate for the previous day.