Probability Distributions For Continuous Variables
A large company is planning to launch a new product in the
market. However, the company is not sure about the state of the economy and its
impact on the return on the capital investment associated with this new product.
A key analysis in this regard is the expected return and risk. Since the new
product can come in three different versions, each associated with a different
capital investment, the company formed three teams each involved in an
independent project to determine which project generates the highest expected
return. The analysis in each project made in the context of the chance of
economical change is shower in the table.
Sate of the Economy
Probability of Occurrence Project
1 Project
3 Project
2
Downward (Recession) 0.6 4 6 7
No Change (Stable) 0.3 5 7 8
Upward (Booming) 0.1 12 14 16
a. Determine
each project’s expected return and variability in return
b. Which
project yields the highest expected return and low risk
Given the probability distributions of Stock A and Stock B
illustrated in the Table, calculate:
a. The
expected return for each stock
b. The
variability in return associated with each stock
Probability Stock
A Stock B
0.4 5 4
0.25 10 11
0.15 12 14
0.1 13 15
0.1 13 16
The weekly gross income of a local restaurant assistant
manager follows a normal probability distribution with a mean of 1000 and a
standard deviation of 100.
a. What are
the z values for the income of assistant managers earning between 900 and 1100
weekly? What is the percent of assistant managers earning this range of income?
b. What are
the z values for the income of assistant managers earning between 800 and 1200
weekly? What is the percent of assistant managers earning this range of income?
c. What are
the z values for the income of assistant managers earning between 700 and 1100
weekly? What is the percent of assistant managers earning this range of income?
d. What are
the z values for the income of assistant managers earning less than 860 weekly?
What is the percent of assistant managers earning this range of income?
e. What are
the z values for the income of assistant managers earning more than 1050 weekly?
What is the percent of assistant managers earning this range of income?
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