The University of Hong Kong

IIMT3636 Decision and Risk Analysis I

Topic 01 - Probability Concepts and Applications (Solutions)

Question 1

Sales No. Days Probability

8 10 0.333
9 12 0.400
10 6 0.200
11 2 0.067
Total 30 1.000

Question 2

The distribution of the nails is as follows:

Type of Nail Number in Bin
1 inch 651
2 inch 243
3 inch 41
4 inch 451
5 inch 333
Total 1,719

!"#
(a) The probability of getting a 4-inch nail is 𝑃(4) = = 0.26
#,%#&
'''
(b) The probability of getting a 5-inch nail is 𝑃(5) = #,%#& = 0.19
(c) The probability of getting a nail 3 inches or shorter is the probability of getting a nail 1 inch, 2 inches, or 3
inches in length. The probability is thus

P(1 or 2 or 3) = P(1) + P(2) + P(3)

("# )!' !#
= #,%#& + #,%#& + #,%#&
= 0.38 + 0.14 + 0.02
= 0.54

Question 3

Exercise No Exercise Total

Cold 45 155 200
No cold 455 345 800
Total 500 500 1000

(a) The probability that an employee will have a cold next year is
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑝𝑒𝑜𝑝𝑙𝑒 𝑤ℎ𝑜 ℎ𝑎𝑑 𝑐𝑜𝑙𝑑𝑠
𝑃(𝐶) =
𝑇𝑜𝑡𝑎𝑙 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠
200
=
1,000
= 0.2
(b) The probability that an employee who is involved in an exercise program will get a cold is
𝑃(𝐶𝐸)
𝑃(𝐶|𝐸) =
𝑃(𝐸)
45
=
500
= 0.09
(c) The probability that an employee who is not involved in an exercise program will get a cold is

Topic 01 - Probability Concepts and Applications (Solutions)

Prepared by Eric Tam 1
The University of Hong Kong
IIMT3636 Decision and Risk Analysis I

𝑃(𝐶𝑁)
𝑃(𝐶|𝑁) =
𝑃(𝑁)
155
=
500
= 0.31
(d) No. If they were independent, then
P(C | E) = P(C), but
45
𝑃(𝐶|𝐸) = = 0.09
500
200
𝑃(𝐶) = = 0.2
1,000
Therefore, these events are not independent.

Question 4

P(A and 85) = P(A|85) × P(85) = (0.90)(0.50) = 45%

Question 5

P(regular class chosen) = 0.5

P(advanced class chosen) = 0.5
P(>1/2 As | regular class) = 0.25
P(>1/2 As | advanced class) = 0.50
P(>1/2 As and regular class)
= P(>1/2 As | regular ) ´ P(regular)
= (0.25)(0.50) = 0.125
P(>1/2 As and advanced class)
= P(>1/2 As | advanced) ´ P(advanced)
= (0.50)(0.5) = 0.25
So P(>1/2 As) = 0.125 + 0.25 = 0.375
1
1 𝑃(> 2 𝐴𝑠 𝑎𝑛𝑑 𝑎𝑑𝑣𝑎𝑛𝑐𝑒𝑑) 0.25 2
𝑃 C𝑎𝑑𝑣𝑎𝑛𝑐𝑒𝑑E > 2 𝐴𝑠H = = =
1 0.375 3
𝑃(> 2 𝐴𝑠)

So, there is a 66% chance the class tested was the advanced one.

Question 6

(a) A marketer who plans to increase use of LinkedIn.

(b) A B2B marketer who plans to increase use of LinkedIn.
1,353
(c) P(Increased use of LinkedIn | B2B marketer) = = 0.7601
1,780
1,719
(d) P(Increased use of LinkedIn | B2C marketer) = = 0.5200
3,306
3,072
(e) P(Increased use of LinkedIn) = 5,086 = 0.6040 and
P(Increased use of LinkedIn | B2B marketer) = 0.7601 are not equal.
Therefore, increased use of LinkedIn and business focus are not independent.

Topic 01 - Probability Concepts and Applications (Solutions)

Prepared by Eric Tam 2
The University of Hong Kong
IIMT3636 Decision and Risk Analysis I

Question 7

347
(a) P(is in private sector) = 536 = 0.6474
347*222+156
(b) P(is in private sector or talent management is priority) = 536
= 0.7705
72
(c) P(cost management is not a priority and is in public sector) = 536 = 0.1343
291*189+72
(d) P(cost management is not a priority or is in public sector) = 536
= 0.7612
117
(e) P(is in public sector | cost management is priority) = = 0.4776
245
128
(f) P(cost management is a priority | in private sector) = 347 = 0.3689 and
245
P(cost management is a priority) = = 0.4571 are not equal, so the categories are not independent.
536
156
(g) P(talent management is a priority | in private sector) = 347 = 0.4496 and
222
P(talent management is a priority) = = 0.4142 are not equal, so the categories are not independent.
536

Question 8

We use the binomial distribution with n = 5, p = 0.6, and r = 3:

𝑛! 5!
𝑃(𝑒𝑥𝑎𝑐𝑡𝑙𝑦 3 𝑠𝑢𝑐𝑐𝑒𝑠𝑠𝑒𝑠 𝑖𝑛 5 𝑡𝑟𝑖𝑎𝑙𝑠) = 𝑝, 𝑞-+, = (0.6)3 (0.4)5+3 = 0.3456
𝑟! ( 𝑛 − 𝑟)! 3! ( 5 − 3)!
We use the binomial distribution with n = 5, p = 0.6, and r = 3:

Question 9

(a) expected value = 0(0.4) + 1(0.3) + 2(0.2) + 3(0.1) = 1.0

(b) variance = 1(0.4) + 0(0.3) + 1(0.2) + 4(0.1) = 1.0
(c) P(2 or more) = 0.2 + 0.1 = 0.3

Question 10

(a) A probability distribution of the results would be:

Number of games Probability P(X)

5 0.4 = 40/100
4 0.3 = 30/100
3 0.2 = 20/100
2 0.1 = 10/100
1 0.0 = 0/100
1.0 = 100/100

This discrete probability distribution is computed using the relative frequency approach. Probabilities are
shown in graph form below.

Topic 01 - Probability Concepts and Applications (Solutions)

Prepared by Eric Tam 3
The University of Hong Kong
IIMT3636 Decision and Risk Analysis I

(b) Here is how the expected outcome can be computed for the Question 10
5

𝐸(𝑥) = N 𝑥. 𝑃(𝑋. ) = 𝑥. 𝑃(𝑋1 ) + 𝑥2 𝑃(𝑋2 ) + 𝑥3𝑃(𝑋3) + 𝑥4𝑃(𝑋4) + 𝑥5𝑃(𝑋5)

./1
= 5(0.4) + 4(0.3) + 3(0.2) + 2(0.1) + 1(0)
= 4.0

(c) Here is how variance is computed:

5
2
variance = NP𝑥. − 𝐸(𝑥)Q 𝑃(𝑥. )
./1
= (5 – 4)2(0.4) + (4 – 4)2(0.3) + (3 – 4)2(0.2) + (2 – 4)2(0.1) + (1 – 4)2(0)
= (1)2(0.4) + (0)2(0.3) + (–1)2(0.2) + (–2)2(0.1) + (-3)2(0)
= 0.4 + 0.0 + 0.2 + 0.4 + 0.0
= 1.0

The standard deviation is

σ = √variance
= √1
=1

Topic 01 - Probability Concepts and Applications (Solutions)

Prepared by Eric Tam 4
The University of Hong Kong
IIMT3636 Decision and Risk Analysis I

Question 11

(a)

X
18.0

18.6

X − μ 18.6 − 18.0
Z= = = 0.12
σ 5.0

µ = 18 µ=0

σ=5 σ=1

18 18.6 X 0 0.12 Z

P(X < 18.6) P(Z < 0.12)

Z 0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09
0.0 .50000 .50399 .50798 .51197 .51595 .51994 .52392 .52790 .53188 .53586
0.1 .53983 .54380 .54776 .55172 .55567 .55962 .56356 .56749 .57142 .57535
0.2 .57926 .58317 .58706 .59095 .59483 .59871 .60257 .60642 .61026 .61409
0.3 .61791 .62172 .62552 .62930 .63307 .63683 .64058 .64431 .64803 .65173
0.4 .65542 .65910 .66276 .66640 .67003 .67364 .67724 .68082 .68439 .68793
0.5 .69146 .69497 .69847 .70194 .70540 .70884 .71226 .71566 .71904 .72240
0.6 .72575 .72907 .73237 .73565 .73891 .74215 .74537 .74857 .75175 .75490
0.7 .75804 .76115 .76424 .76730 .77035 .77337 .77637 .77935 .78230 .78524
0.8 .78814 .79103 .79389 .79673 .79955 .80234 .80511 .80785 .81057 .81327
0.9 .81594 .81859 .82121 .82381 .82639 .82894 .83147 .83398 .83646 .83891

Thus, 𝑃(𝑍 < 18.6) = 𝑃(𝑍 < 0.12) = 0.54776

Topic 01 - Probability Concepts and Applications (Solutions)

Prepared by Eric Tam 5
The University of Hong Kong
IIMT3636 Decision and Risk Analysis I

(b)

X
18.0

18.6
0.5478
1.000 1.0 - 0.54776 = 0.45224

Z Z
0 0

0.12 0.12
P(X > 18.6) = P(Z > 0.12) = 1 − P(Z ≤ 0.12) = 1 − 0.54776 = 0.45224
(c)

18 18.6 X 0 0.12 Z
X − μ 18 − 18
Z= = =0
σ 5
X − μ 18.6 − 18
Z= = = 0.12
σ 5
0.04776
0.50000

Z
0.0
0
0.12
P(18 < X < 18.6) = P(0 < Z < 0.12) = P(Z < 0.12) – P(Z ≤ 0) = 0.54776 − 0.5000 = 0.04776

Topic 01 - Probability Concepts and Applications (Solutions)

Prepared by Eric Tam 6
The University of Hong Kong
IIMT3636 Decision and Risk Analysis I

Question 12

We use the binomial distribution to solve this problem

-! 10!
(a) P(r = 2) = ,!( -+,)! 𝑝, 𝑞-+, = 2!( 10+2)! 0.22 (1 − 0.8)10+2 = 0.3020
10! 10!
(b) P(r ≤ 1) = 𝑃(0) + 𝑃(1) = 0!( 10+0)! 0.20 (1 − 0.8)10+0 + 1!( 10+1)!
0.21 (1 − 0.8)10+1 = 0.1074 + 0.2684 = 0.3758
10! 10! 10!
(c) P(r > 1) =P(2)+P(3)….+P(10) = 2!( 10+2)!
0.22 (1 − 0.8)10+2 + 3!( 10+3)! 0.23 (1 − 0.8)10+3 +. . . . 10!( 10+10)! 0.210 (1 −
0.8)10+10 = 0.6242

Question 13

We use the exponential distribution to solve this problem

!
#
(a) 𝑃 C𝑋 ≤ 'H = 1 − 𝑒 +)∙" = 0.487
1
1 1
(b) 𝑃 C𝑋 ≥ 2H = 1 − 𝑃 C𝑋 < 2H = 1 − (1 − 𝑒 +2∙2 ) = 0.368

Challenge Questions

The chances of getting 15 days of rain during the next 30 days can be computed by using the binomial
theorem. The problem is well suited for solution by the theorem because there are two and only two
possible outcomes (rain or shine) with given probabilities (70% and 30%, respectively).
-!
Probability of r successes = 𝑝, (𝑞-+, )
,!(-+,)!
where
n = the number of trials (in this case, the number of days = 30),
r = the number of successes (number of rainy days = 15),
p = probability of success (probability of rain = 70%), and
q = probability of failure (probability of shine = 30%).
𝑛! 30!
𝑝, (𝑞-+, ) = (0.70)15 (0.30)15 = .0106
𝑟! (𝑛 − 𝑟)! 15! (15!)
The probability of getting exactly 15 days of rain in the next 30 days is 0.0106 or a 1.06% chance.

MC T/F
1. D 1. F
2. B 2. T
3. C 3. T
4. D 4. T
5. E 5. T
6. C 6. T
7. C 7. T
8. E 8. F
9. B 9. T
10. C 10. T
11. C 11. T
12. A 12. F
13. E 13. T
14. D 14. F
15. D 15. T
16. F

Topic 01 - Probability Concepts and Applications (Solutions)

Prepared by Eric Tam 7