Learning Objectives

• Distinguish between measures of

central tendency, measures of
variability, and measures of shape
• Understand the meanings of mean,
median, mode, quartile, percentile, and
range
• Compute mean, median, mode,
percentile, quartile, range, variance,
standard deviation, and mean absolute
deviation
© 2002 Thomson / South-Western Slide 3-2
Learning Objectives -- Continued
• Differentiate between sample and
population variance and standard
deviation
• Understand the meaning of standard
deviation as it is applied by using the
empirical rule
• Understand box and whisker plots,
skewness, and kurtosis

© 2002 Thomson / South-Western Slide 3-3

 Measures of Central Tendency
• Measures of central tendency yield
information about “particular places or
locations in a group of numbers.”
• Common Measures of Location
–Mode
–Median
–Mean
–Percentiles
–Quartiles

© 2002 Thomson / South-Western Slide 3-4

 Mode
• The most frequently occurring value in a
data set
• Applicable to all levels of data
measurement (nominal, ordinal, interval,
and ratio)

• Bimodal -- Data sets that have two

modes
• Multimodal -- Data sets that contain
more than two modes
© 2002 Thomson / South-Western Slide 3-5
 Mode -- Example
• The mode is 44.
• There are more 44s 35 41 44 45

than any other value. 37 41 44 46

37 43 44 46

39 43 44 46

40 43 44 46

40 43 45 48

© 2002 Thomson / South-Western Slide 3-6

 Median (ΔΙΑΜΕΣΟΣ)
• Middle value in an ordered array of
numbers.
• Applicable for ordinal, interval, and ratio
data
• Not applicable for nominal data
• Unaffected by extremely large and
extremely small values.

© 2002 Thomson / South-Western Slide 3-7

Median: Computational Procedure
• First Procedure
– Arrange observations in an ordered array.
– If number of terms is odd, the median is
the middle term of the ordered array.
– If number of terms is even, the median is
the average of the middle two terms.

• Second Procedure
– The median’s position in an ordered array
is given by (n+1)/2.

© 2002 Thomson / South-Western Slide 3-8

 Median: Example with
an Odd Number of Terms
Ordered Array includes:
3 4 5 7 8 9 11 14 15 16 16 17 19 19 20 21 22

• There are 17 terms in the ordered array.

• Position of median = (n+1)/2 = (17+1)/2 = 9
• The median is the 9th term, 15.
• If the 22 is replaced by 100, the median
remains at 15.
• If the 3 is replaced by -103, the median
remains at 15.
© 2002 Thomson / South-Western Slide 3-9
 Mean (ΜΕΣΟΣ)
• Is the average of a group of numbers
• Applicable for interval and ratio data,
not applicable for nominal or ordinal
data
• Affected by each value in the data set,
including extreme values
• Computed by summing all values in the
data set and dividing the sum by the
number of values in the data set

© 2002 Thomson / South-Western Slide 3-10

 Population Mean


 X X  X  X ...  X
 1 2 3 N
N N
24  13  19  26  11

5
93

5
 18. 6

© 2002 Thomson / South-Western Slide 3-11

 Sample Mean

X
 X X  X  X ...  X
 1 2 3 n
n n
57  86  42  38  90  66

6
379

6
 63.167

© 2002 Thomson / South-Western Slide 3-12

 Quartiles
Measures of central tendency that divide
a group of data into four subgroups

• Q1: 25% of the data set is below the first

quartile
• Q2: 50% of the data set is below the
second quartile
• Q3: 75% of the data set is below the third
quartile

© 2002 Thomson / South-Western Slide 3-13

 Quartiles, continued
• Q1 is equal to the 25th percentile

• Q2 is located at 50th percentile and

equals the median

• Q3 is equal to the 75th percentile

Quartile values are not necessarily

members of the data set
© 2002 Thomson / South-Western Slide 3-14
 Quartiles

Q1 Q2 Q3

25% 25% 25% 25%

© 2002 Thomson / South-Western Slide 3-15

 Quartiles: Example
• Ordered array: 106, 109, 114, 116, 121,
122, 125, 129
25 109114
• Q 1: i (8)  2 Q1   1115
.
100 2
50 116121
• Q 2: i (8)  4 Q2   1185
.
100 2
75 122125
i (8)  6 Q3   1235
.
• Q 3: 100 2
© 2002 Thomson / South-Western Slide 3-16
 Measures of Variability
• Measures of variability describe the spread
or the dispersion of a set of data.
• Common Measures of Variability
–Range
–Interquartile Range
–Mean Absolute Deviation
–Variance
–Standard Deviation
– Z scores
–Coefficient of Variation
© 2002 Thomson / South-Western Slide 3-17
 Variability
No Variability in Cash Flow Mean
Mean

Variability in Cash Flow Mean

Mean

© 2002 Thomson / South-Western Slide 3-18

 Variability

Variability

No Variability
© 2002 Thomson / South-Western Slide 3-19
 Range
• The difference between the largest and
the smallest values in a set of data
• Simple to compute 35 41 44 45

• Ignores all data points 37 41 44 46

except the
37 43 44 46
two extremes
• Example: 39 43 44 46

Range 40 43 44= 46
Largest - Smallest =
40 43 45 48
48 - 35 = 13
© 2002 Thomson / South-Western Slide 3-20
 Interquartile Range

• Range of values between the first and third

quartiles
• Range of the “middle half”
• Less influenced by extremes

Interquartile Range  Q 3  Q1

© 2002 Thomson / South-Western Slide 3-21

 Deviation from the Mean
• Data set: 5, 9, 16, 17, 18
• Mean:

 X 65
  13
N 5
• Deviations from the mean: -8, -4, 3, 4, 5
+5
+3 +4
-8 -4
0 5 10 15 20


© 2002 Thomson / South-Western Slide 3-22
 Mean Absolute Deviation
• Average of the absolute deviations from
the mean

X X   X    X 
M . A. D. 
5 -8 +8 N
9 -4 +4 24
16 +3 +3 
17 +4 +4
5
18 +5 +5  4.8
0 24

© 2002 Thomson / South-Western Slide 3-23

 Population Variance
• Average of the squared deviations from
the arithmetic mean
X   X
 X 
X  
2
2


2
5 -8 64 
9 -4 16 N
16 +3 9 130

17 +4 16 5
18 +5 25  2 6 .0
0 130

© 2002 Thomson / South-Western Slide 3-24

 Population Standard Deviation
• Square root of

 X 
the variance 2

X X   X  
2

2

N
5 -8 64 130
9 -4 16 
5
16 +3 9
 2 6 .0
17 +4 16
18 +5 25   
2

0 130
 2 6 .0
© 2002 Thomson / South-Western  5 .1 Slide 3-25
 Empirical Rule
• Data are normally distributed (or
approximately normal)

Distance from Percentage of Values

the Mean Falling Within Distance

  1 68
  2 95
  3 99.7
© 2002 Thomson / South-Western Slide 3-26
 Sample Variance
• Average of the squared deviations from
the arithmetic mean

X X  X X X  X 
 X 
2
2


2
2,398 625 390,625 S n1
1,844 71 5,041
1,539 -234 54,756 6 6 3 ,8 6 6

1,311 -462 213,444 3
7,092 0 663,866  2 2 1 , 2 8 8 .6 7

© 2002 Thomson / South-Western Slide 3-27

 Sample Standard Deviation
• Square root of the
X  X 
2

sample variance 2

S n1
X X  X X  X 
2

6 6 3 ,8 6 6
2,398 625 390,625 
1,844 71 5,041 3
1,539 -234 54,756  2 2 1 , 2 8 8 .6 7
1,311 -462 213,444 2
7,092 0 663,866 S  S
 2 2 1 , 2 8 8 .6 7
 4 7 0 .4 1
© 2002 Thomson / South-Western Slide 3-28
 Coefficient of Variation
• Ratio of the standard deviation to the
mean, expressed as a percentage
• Measurement of relative dispersion


C.V . 100


© 2002 Thomson / South-Western Slide 3-29

 Coefficient of Variation
  29
1
  84
2

 1
 4.6  2
 10
 100  100
. .
CV 1
1
. .
CV 2
2

1 2

4.6 10
 100  100
29 84
 1586
.  1190
.
© 2002 Thomson / South-Western Slide 3-30
 Measures of Shape
• Skewness
– Absence of symmetry
– Extreme values in one side of a
distribution
• Kurtosis
– Peakedness of a distribution
• Box and Whisker Plots
– Graphic display of a distribution
– Reveals skewness

© 2002 Thomson / South-Western Slide 3-31

 Skewness

Negatively Symmetric Positively

Skewed (Not Skewed) Skewed

© 2002 Thomson / South-Western Slide 3-32

 Skewness

Mean Mode Mean Mean

Mode
Median
Median Mode Median

Negatively Symmetric Positively

Skewed (Not Skewed) Skewed

© 2002 Thomson / South-Western Slide 3-33

 Coefficient of Skewness
• Summary measure for skewness

3   Md 
S

• If S < 0, the distribution is negatively
skewed (skewed to the left).
• If S = 0, the distribution is symmetric (not
skewed).
• If S > 0, the distribution is positively
skewed (skewed to the right).
© 2002 Thomson / South-Western Slide 3-34
 Coefficient of Skewness

 1
 23  2
 26  3
 29

M
d1  26 M
d2  26 M
d3  26
 1
 12.3  2
 12.3  3
 12.3



3 1  M d1  

3 2  M d2  

3 3  M 
d3
S 1
 S 2
 S 3

1 2 3

3 23  26 3 26  26 3 29  26

  
12.3 12.3 12.3
 0.73 0  0.73
© 2002 Thomson / South-Western Slide 3-35
 Kurtosis
• Peakedness of a distribution
– Leptokurtic: high and thin
– Mesokurtic: normal in shape
– Platykurtic: flat and spread out

Leptokurtic

Mesokurtic
Platykurtic

© 2002 Thomson / South-Western Slide 3-36

 Box and Whisker Plot

• Five specific values are used:

– Median, Q2
– First quartile, Q1
– Third quartile, Q3
– Minimum value in the data set
– Maximum value in the data set

© 2002 Thomson / South-Western Slide 3-37

Box and Whisker Plot, continued
• Inner Fences
– IQR = Q3 - Q1
– Lower inner fence = Q1 - 1.5 IQR
– Upper inner fence = Q3 + 1.5 IQR

• Outer Fences
– Lower outer fence = Q1 - 3.0 IQR
– Upper outer fence = Q3 + 3.0 IQR

© 2002 Thomson / South-Western Slide 3-38

 Box and Whisker Plot

Minimum Q1 Q2 Q3 Maximum

© 2002 Thomson / South-Western Slide 3-39

Skewness: Box and Whisker Plots,
and Coefficient of Skewness
S<0 S=0 S>0

Negatively Symmetric Positively

Skewed (Not Skewed) Skewed
© 2002 Thomson / South-Western Slide 3-40