CHAPTER 2 Q &A

1. Define what is standard deviation?

Answer: Standard deviation is a statistical measurement that quantifies the amount of
variation or dispersion in a dataset. It provides information about how spread out the values in
a dataset are around the mean, or average, value.

2. What is the difference of line graph and bar graph?

Answer: A line graph is a data visualization that represents data points connected by straight
lines, typically used to display trends over time. It is commonly used to depict continuous data
such as temperature changes or stock market trends.

On the other hand, a bar graph, also known as a bar chart, uses rectangular bars of equal width
to represent categorical or discrete data. Each bar represents a category, and the height of the
bar corresponds to the value or frequency of that category. Bar graphs are frequently used for
comparing different categories or displaying discrete data.

3. In statistics, what is frequency?

Answer: In statistics, frequency refers to the number of times a particular value or category
occurs in a dataset. It provides information about the distribution or occurrence of values or
categories within a dataset.

4. What does capital letter of sigma mean?

Answer: The capital letter sigma (Σ) in statistics represents the summation symbol. It indicates
the sum of a sequence or set of values. When used with a lower case letter in front, such as Σx,
it denotes the sum of all individual values in a dataset.

5. What is the definition of mean, median and mode?

Answer: The definitions of mean, median, and mode are as follows:

- Mean: The mean is the average value of a dataset. It is calculated by summing up all the
values in the dataset and dividing the sum by the number of values.

- Median: The median is the middle value in a dataset when the values are arranged in
ascending or descending order. If there is an even number of values, the median is the average
of the middle two values.
- Mode: The mode is the value(s) that occur(s) most frequently in a dataset. It can be multiple
modes in a dataset, or there might be no mode if no value occurs more frequently than others.

CHAPTER 4 Q &A
1. What is Discrete Probability Distribution?

Answer: Discrete Probability Distribution refers to a probability distribution that is

characterized by a finite Hypergeometric Distribution: It models the number of successes in a
fixed number of draws, without replacement, from a finite population of two types of objects.

2. Illustrate the difference between Binomial, Geometric,

Answer: Binomial Distribution: It models the number of successes in a fixed number of

independent Bernoulli trials, where each trial has the same probability of success.

Geometric Distribution: It models the number of trials needed to achieve the first success in a
sequence of independent Bernoulli trials, where each trial has the same probability of success.
ut your long-term average profits and losses on this game.
c. Should you play this game to win money?

Answer: a. To find the expected value for this game, we calculate the sum of the products of
each outcome's probability and its associated net gain/loss. Let's denote the probability of
selecting a face card as p1 and the probability of landing heads on the coin toss as p2.

Expected value = (p1 * p2 * $6) + (p1 * (1 - p2) * $2) + ((1 - p1) * (-$2))

b. The calculated expected value gives us the average net gain or loss we can expect to have per
game in the long run. If the expected value is positive, it indicates long-term average profits,
while a negative value indicates long-term average losses.

c. Whether to play this game to win money or not depends on the individual's risk tolerance
and the magnitude of the average net gain/loss calculated in part a. If the expected value is
positive and the person is comfortable with the potential risks, they may consider playing the
game.

3-5. Answer the following situation.

3. A game involves selecting a card from a regular 52-card deck and tossing a coin.

Answer: A game involves selecting a card from a regular 52-card deck and tossing a coin. The
coin is a fair coin and is equally likely to land on heads or tails.
 • If the card is a face card, and the coin lands on Heads, you win $6
• If the card is a face card, and the coin lands on Tails, you win $2
• If the card is not a face card, you lose $2, no matter what the coin shows.
a. Find the expected value for this game (expected net gain or loss).
or countable set of possible outcomes. Each outcome is associated with a specific
probability of occurrence, and the probabilities of all possible outcomes in the distribution
sum up to 1.

4. A venture capitalist, willing to invest $1,000,000, has three investments to choose from.
The first investment, a software company, has a 10% chance of returning $5,000,000 profit, a
30% chance of returning $1,000,000 profit, and a 60% chance of losing the million dollars. The
second company, a hardware company, has a 20% chance of returning $3,000,000 profit, a
40% chance of returning $1,000,000 profit, and a 40% chance of losing the million dollars. The
third company, a biotech firm, has a 10% chance of returning $6,000,000 profit, a 70% of no
profit or loss, and a 20% chance of losing the million dollars. a. Construct a PDF for each
investment. b. Find the expected value for each investment. c. Which is the safest
investment? Why do you think so? d. Which is the riskiest investment? Why do you think so?
e. Which investment has the highest expected return, on average?

Answer: a. PDF for Investment 1:

Profit: 10% chance of $5,000,000; 30% chance of $1,000,000; 60% chance of -$1,000,000.
PDF for Investment 2:
Profit: 20% chance of $3,000,000; 40% chance of $1,000,000; 40% chance of -$1,000,000.
PDF for Investment 3:
Profit: 10% chance of $6,000,000; 70% chance of $0; 20% chance of -$1,000,000.

b. Expected value for each investment can be calculated by multiplying each possible outcome's
value by its probability and summing them up.

c. The safest investment would be the one with the least chance of incurring a loss. In this case,
it seems like Investment 3 (biotech firm) is the safest, as it has a 70% chance of no profit or loss.

d. The riskiest investment would be the one with the highest chance of incurring a loss. In this
case, it seems like Investment 1 (software company) is the riskiest, as it has a 60% chance of
losing $1,000,000.

e. The investment with the highest expected return, on average, can be determined by
comparing the expected values calculated in part b. The one with the highest expected value is
the investment with the highest average return.

5. In a lottery, there are 250 prizes of $5, 50 prizes of $25, and ten prizes of $100. Assuming
that 10,000 tickets are to be issued and sold, what is a fair price to charge to break even?
Answer: To determine a fair price to charge in order to break even, we need to calculate the
expected value of winning from the lottery.

Let's denote the probability of winning each prize category:

p1 = probability of winning a $5 prize
p2 = probability of winning a $25 prize
p3 = probability of winning a $100 prize

We can calculate the expected value as follows:

Expected value = (p1 * $5) + (p2 * $25) + (p3 * $100)

The probabilities can be calculated by dividing the number of prizes in each category by the
total number of tickets:

p1 = 250 / 10,000
p2 = 50 / 10,000
p3 = 10 / 10,000

Plugging in these values and performing the calculations, we get:

Expected value = (250 / 10,000 * $5) + (50 / 10,000 * $25) + (10 / 10,000 * $100)
= $1.25 + $0.125 + $0.10
= $1.475

Therefore, the expected value of winning from the lottery is $1.475 per ticket.

In order to break even, the fair price to charge for each ticket would be $1.475