Chapter 4: Q87E (page 262)
Find each of the following probabilities for the standard normal random variable z:
/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none}
Learning Materials
Features
Discover
Chapter 4: Q87E (page 262)
Find each of the following probabilities for the standard normal random variable z:
All the tools & learning materials you need for study success - in one app.
Get started for free
Investment risk analysis. The risk of a portfolio of financial assets is sometimes called investment risk. In general, investment risk is typically measured by computing the variance or standard deviation of the probability distribution that describes the decision maker鈥檚 potential outcomes (gains or losses). The greater the variation in potential outcomes, the greater the uncertainty faced by the decision maker; the smaller the variation in potential outcomes, the more predictable the decision maker鈥檚 gains or losses. The two discrete probability distributions given in the next table were developed from historical data. They describe the potential total physical damage losses next year to the fleets of delivery trucks of two different firms.
Firm A | Firm B | |||||
Loss Next Year | Probabiity | Loss Next Year | Probability | |||
0 | 0.01 | 0 | 0 | |||
500 | 0.01 | 200 | 0.01 | |||
1000 | 0.01 | 700 | 0.02 | |||
1500 | 0.02 | 1200 | 0.02 | |||
2000 | 0.35 | 1700 | 0.15 | |||
2500 | 0.3 | 2200 | 0.3 | |||
3000 | 0.25 | 2700 | 0.3 | |||
3500 | 0.02 | 3200 | 0.15 | |||
4000 | 0.01 | 3700 | 0.02 | |||
4500 | 0.01 | 4200 | 0.02 | |||
5000 | 0.01 | 4700 | 0.01 |
a. Verify that both firms have the same expected total physical damage loss.
b. Compute the standard deviation of each probability distribution and determine which firm faces the greater risk of physical damage to its fleet next year.
Variable life insurance return rates. With a variable life insurance policy, the rate of return on the investment (i.e., the death benefit) varies from year to year. A study of these variable return rates was published in International Journal of Statistical Distributions (Vol. 1, 2015). A transformedratio of the return rates (x) for two consecutive years was shown to have a normal distribution, with and role="math" localid="1660283206727" . Use the standard normal table or statistical software to find the following probabilities.
a.
b.
c.
Suppose x is a binomial random variable with p = .4 and n = 25.
a. Would it be appropriate to approximate the probability distribution of x with a normal distribution? Explain.
b. Assuming that a normal distribution provides an adequate approximation to the distribution of x, what are the mean and variance of the approximating normal distribution?
c. Use Table I in Appendix D to find the exact value of .
d. Use the normal approximation to find .
Stock market. Give an example of a continuous random variable that would be of interest to a stockbroker.
The binomial probability distribution is a family of probability distributions with every single distribution depending on the values of n and p. Assume that x is a binomial random variable with n = 4.
What do you think about this solution?
We value your feedback to improve our textbook solutions.