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APPENDIX B
Fundamentals of Probability
SOLUTIONS TO PROBLEMS

B.1 Before the student takes the SAT exam, we do not know – nor can we predict with certainty
– what the score will be? The actual score depends on numerous factors, many of which we
cannot even list, let alone know ahead of time. (The student’s innate ability, how the student
feels on exam day, and which particular questions were asked, are just a few.) The eventual SAT
score clearly satisfies the requirements of a random variable.

B.2 (i) P(X ≤ 6) = P[(X – 5)/2 ≤ (6 – 5)/2] = P(Z ≤ .5) ≈ .692, where Z denotes a Normal(0,1)
random variable. [We obtain P(Z ≤ .5) from Table G.1.]

(ii) P(X > 4) = P[(X – 5)/2 > (4 – 5)/2] = P(Z > −.5) = P(Z ≤ .5) ≈ .692.

(iii) P(|X – 5| > 1) = P(X – 5 > 1) + P(X – 5 < –1) = P(X > 6) + P(X < 4) ≈ (1 – .692) + (1 –
.692) = .616, where we have used answers from parts (i) and (ii).

B.3 (i) Let Y it be the binary variable equal to one if fund i outperforms the market in year t. By
assumption, P(Y it = 1) = .5 (a 50-50 chance of outperforming the market for each fund in each
year). Now, for any fund, we are also assuming that performance relative to the market is
independent across years. But then the probability that fund i outperforms the market in all 10
years, P(Y i1 = 1,Y i2 = 1,  , Y i,10 = 1), is just the product of the probabilities: P(Y i1 = 1) ⋅ P(Y i2 =
1)  P(Y i,10 = 1) = (.5)10 = 1/1024 (which is slightly less than .001). In fact, if we define a
binary random variable Y i such that Y i = 1 if and only if fund i outperformed the market in all 10
years, then P(Y i = 1) = 1/1024.

(ii) Let X denote the number of funds out of 4,170 that outperform the market in all 10 years.
X has the Binomial (n,θ) distribution with n = 4,170 and θ = 1/1024. The expected number of
funds that will outperform the market in all 10 years is calculated as nθ = 4.07 ≈ 4.

(iii) Let X denote the number of funds out of 4,170 that outperform the market in all 10 years.
Then X = Y 1 + Y 2 +  + Y 4,170 . If we assume that performance relative to the market is
independent across funds, then X has the Binomial (n,θ) distribution with n = 4,170 and θ =
1/1024. We want to compute P(X ≥ 1) = 1 – P(X = 0) = 1 – P(Y 1 = 0, Y 2 = 0, …, Y 4,170 = 0) = 1 –
P(Y 1 = 0)⋅ P(Y 2 = 0)⋅⋅⋅P(Y 4,170 = 0) = 1 – (1023/1024)4170 ≈ .983. This means, if performance
relative to the market is random and independent across funds, it is almost certain that at least
one fund will outperform the market in all 10 years.

(iv) Using the Stata command Binomial(4170,5,1/1024), the answer is about .385. So, there
is a nontrivial chance that at least five funds will outperform the market in all 10 years.

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 306

B.4 We want P(X ≥.6). Because X is continuous, this is the same as P(X > .6) = 1 – P(X ≤ .6) =
F(.6) = 3(.6)2 – 2(.6)3 = .648. One way to interpret this is that almost 65% of all counties have
an elderly employment rate of .6 or higher.

B.5 (i) As stated in the hint, if X is the number of jurors convinced of Simpson’s innocence, then
X ~ Binomial(12,.20). We want P(X ≥ 1) = 1 – P(X = 0) = 1 – (.8)12 ≈ .931.

(ii) Above, we computed P(X = 0) as about .069. We need P(X = 1), which we obtain from
(B.14) with n = 12, θ = .2, and x = 1: P(X = 1) = 12⋅ (.2)(.8)11 ≈ .206. Therefore, P(X ≥ 2) ≈ 1 –
(.069 + .206) = .725, so there is almost a three in four chance that the jury had at least two
members convinced of Simpson’s innocence prior to the trial.

3 3 3 3

B.6 E(X) = ∫ xf ( x)dx =

3
∫ x[(1/ 9) x ]dx = (1/9) ∫ x dx . But ∫ x dx = (1/4)x4 |0 = 81/4.
2 3 3

0 0 0 0

Therefore, E(X) = (1/9)(81/4) = 9/4, or 2.25 years.

B.7 In eight attempts the expected number of free throws is 8(.74) = 5.92, or about six free
throws.

B.8 The weights for the two-, three-, and four-credit courses are 2/9, 3/9, and 4/9, respectively.
Let Y j be the grade in the jth course, j = 1, 2, and 3, and let X be the overall grade point average.
Then X = (2/9)Y 1 + (3/9)Y 2 + (4/9)Y 3 and the expected value is E(X) = (2/9)E(Y 1 ) + (3/9)E(Y 2 ) +
(4/9)E(Y 3 ) = (2/9)(3.5) + (3/9)(3.0) + (4/9)(3.0) = (7 + 9 + 12)/9 ≈ 3.11.

B.9 If Y is salary in dollars, then Y = 1000 ⋅ X, and so the expected value of Y is 1,000 times the
expected value of X, and the standard deviation of Y is 1,000 times the standard deviation of X.
Therefore, the expected value and standard deviation of salary, measured in dollars, are $52,300
and $14,600, respectively.

B.10 (i) E(GPA|SAT = 800) = .70 + .002(800) = 2.3. Similarly, E(GPA|SAT = 1,400) = .70 +
.002(1400) = 3.5. The difference in expected GPAs is substantial, but the difference in SAT
scores is also rather large.

(ii) Following the hint, we use the law of iterated expectations. Since E(GPA|SAT) = .70 +
.002 SAT, the (unconditional) expected value of GPA is .70 + .002 E(SAT) = .70 + .002(1100) =
2.9.

(iii) If a student’s SAT score is 1,100, this does not mean he or she will have the GPA 2.9,
found in part(ii). The GPA of 2.9 is the average GPA calculated when the average SAT score is
1,100. GPA is influenced by other variables.

B.11 (i) Let X be a random variable taking on the values −1 and 1, each with probability 1/2.
E(X) = 𝑥𝑥1 𝑓𝑓(𝑥𝑥1 ) + 𝑥𝑥2 𝑓𝑓(𝑥𝑥2 ).
E(X) = 1(1/2) + (-1)(1/2) = 0.
© 2016 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise
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E(𝑋𝑋 2 ) = 𝑥𝑥12 𝑓𝑓(𝑥𝑥1 ) + 𝑥𝑥22 𝑓𝑓(𝑥𝑥2 ).

E(𝑋𝑋 2 ) =1(1/2) + 1(1/2) = 1.

(ii) Let X be a random variable taking on the values 1 and 2, each with probability 1/2.
E(X) = 𝑥𝑥1 𝑓𝑓(𝑥𝑥1 ) + 𝑥𝑥2 𝑓𝑓(𝑥𝑥2 ).
E(X) = 1(1/2) + 2(1/2) = 3/2.
1 1
E(1/𝑋𝑋) = ( )𝑓𝑓(𝑥𝑥1 ) + ( )𝑓𝑓(𝑥𝑥2 ).
𝑥𝑥1 𝑥𝑥2
E(1/𝑋𝑋) =1(1/2) + (1/2)(1/2) = 3/4.

(iii) Form parts (i) and (ii) we observe that

E(𝑋𝑋 ≠ (E(𝑋𝑋))2 and E(1/𝑋𝑋) ≠ 1/E(𝑋𝑋).
2)

In general for a nonlinear function 𝑔𝑔(∙),

E(g(X)] ≠ g[E(X)].

(iv) To define an F random variable, let 𝑋𝑋1 ≈ 𝜒𝜒𝑘𝑘21 and 𝑋𝑋2 ≈ 𝜒𝜒𝑘𝑘22 . Assume that 𝑋𝑋1 and 𝑋𝑋2 are
independent.
Then, the random variable
(𝑋𝑋1 ⁄𝐾𝐾1 )
𝐹𝐹 = ,
(𝑋𝑋2 ⁄𝐾𝐾2 )

has an F distribution with (𝑘𝑘1 , 𝑘𝑘2 ) degrees of freedom.

We also know that if 𝑋𝑋 ≈ 𝜒𝜒𝑛𝑛2 , then the expected value of X is n.

1
E(F) = E[(𝑋𝑋1 ⁄𝑘𝑘1 )]E � � because we have E(U/V) = E(U)E(1/V) if U and V are independent.
(𝑋𝑋2 ⁄𝑘𝑘2 )
1
E(F) = 1/𝑘𝑘1 E(𝑋𝑋1 )E � ⁄ �
(𝑋𝑋2 𝑘𝑘2 )
1
E(𝐹𝐹) = 𝑘𝑘1 /𝑘𝑘1 E � ⁄ � because E(𝑋𝑋1 ) = 𝑘𝑘1
(𝑋𝑋2 𝑘𝑘2 )
1
E(𝐹𝐹) = E � ⁄ �.
(𝑋𝑋2 𝑘𝑘2 )

E(F) is not equal to one, because the expectation of ratio is not equal to ratio of expectation.

© 2016 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise
on a password-protected website or school-approved learning management system for classroom use.