STD121/121E 2023 – Business Statistics

CHAPTER ONE

INTRODUCTION AND DEFINITION OF TERMS

1.1 WHAT IS STATISTICS?

Statistics is the science of collecting, analysing and interpreting data.

For example; Statistical analysis in decision making

Input Process Output Benefit

Data Statistical Information Decision Making

Analysis
1.2 Statistics enables us to:

1) accurately describe the findings of scientific research

2) make decisions
3) make estimations

1.3 TYPES OF STATISTICS

There are two types of statistics:

1. Descriptive Statistics –
Includes the collection, presentation, and description of data. It is the area of statistics which deals with
the techniques used to summarize given data. It is also called exploratory data analysis.

2. Inferential Statistics –
The technique of interpreting the values resulting from descriptive techniques and then using them to
make decisions and draw conclusions about a population.

1.4 BASIC STATISTICAL TERMS

• Population - a collection, or set, of individuals or objects whose properties are to be analyzed. A

population can be finite (each element can be listed) or infinite (unlimited).
• Sample - a subset of a population
• Variable - a characteristic of interest about each individual element of a population or sample.
• Data (singular) - the value of the variable associated with one element of a population or sample.
• Data (plural) - the set of values collected for the variable from each of the elements belonging to the
sample.
• Experiment - a planned activity whose results yield a set of data.
• Parameter - a numerical characteristic of an entire population.
• Statistic - a numeric characteristic of a sample.

Exercise 1: A statistics student is interested in finding out something about the dollar value of the typical
car owned by the faculty members of UFH. Find descriptions for each of the following eight
terms:
1) Population –
2) Sample -
3) Variable -
4) Data (singular) -
5) Data (plural) -
6) Experiment -
7) Parameter -
8) Statistic -

1.5 Variables and Types of Data

Data is obtained by measuring the values of one or more variables.
There are two types of data:

(1) Qualitative
(2) Quantitative

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Qualitative Data - results from a process that categorizes or describes an element of a population.
Qualitative data are non-numeric. This type of data can be names, phrases, strings, etc. Some
examples of qualitative data are:
• The political party you support.
• Your gender.
• Responses to interview questions, provided the responses are non-numeric.
Quantitative Data - results from a process that measures or counts
Quantitative data are numeric, based on a naturally-occurring numerical scale.
Some examples of quantitative data are:
• The time you have to wait for the next bus.
• Your height or weight.
Variable is a quantity that can assume a given value from a prescribed set or domain.
A Random Variable is any attribute or characteristic being measured or observed.
Constant Variable is a variable that can assume only one value.
Discrete Variable assumes distinct integer values with no intermediate points. For instance,
the number of unemployed people. Therefore, discrete data is obtained from measuring discrete
variables.
Continuous Variables can assume any value in a given range. That is whole numbers or
fractions e.g. weight. Therefore, continuous data is obtained from measuring continuous variables.

Exercise 2: Classify each of the following variables as (1) Qualitative data, (2) continuous data, or (3)
discrete data.

1) The first semester's academic average for a student enrolled this year at a high school in our county.
2) The number of students with an honor roll average.
3) The number of students in the SRC committee.
4) The number of minutes that it takes a student in statistics to complete an exam.
5) The number of cracked eggs per dozen found on the shelf at a local grocery.
6) The number of station wagons sold to new-car buyers in South Africa during 1997.
7) The number of "shocks" that each laboratory mouse receives before it completes the desired task.

Scenario to illustrate statistical terms and concepts.

Scenario - Daily fuel transactions Analysis at all Service Stations in East London.
Random Variable — Monetary value (in Rands) of fuel transactions.
Data —Value of each fuel transaction. E.g. R460; R230, 50; R1050 etc.
Sampling unit — A service station in East London.
Population — Every fuel transaction at all service stations in East London.
Population parameter — The actual average value of a fuel transaction is R540.
Sample — 650 randomly selected fuel transactions at 6 service stations.
Sample statistic — The sample average value of a fuel transaction is R216.

1.4 SCALES OF MEASUREMENTS

Data can be defined by its scale of measurement which indicates how much numeric information is contained
in the data. This determines which statistical methods are
appropriate in order to produce valid results. There are four scales of measurements:

 Nominal-scaled data.
 Ordinal-scaled data.
 Interval-scaled data.
 Ratio-scaled data.

Nominal Scale: It distinguishes one item from another on the basis of a ‘name”. Hence, it is called nominal
scale.
Values are assigned numbers or characters. It is the simplest or weakest kind of scale since numerical
differences are meaningless.

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Examples of nominal-scaled data for categorical random variables

Random Variable Nominal-scaled Response Categories (With arbitrarily assigned

numeric codes)
Gender 1=Female 2= Male
Town of Residence 1=King Williams Town 2=East London 3=Queenstown 4=Other
Home of Language 1=Xhosa 2=English 3=Afrikaans 4=Other

Ordinal Scale: It is more precise than nominal scale. It distinguishes one item from another on the basis of
the amount of characteristic that the item possesses. That is the items can be ranked from smallest to largest
or vice versa.

Random Variable Ordinal Categories Ranked Codes

Company size Small 1
(showing increasing turnover) Medium 2
Large 3
Exercise Light 1
(Showing increasing Moderate 2
frequency) Heavy 3

N.B The data obtained from nominal scale or ordinal scale is called qualitative data or categorical data

Interval scale: Applicable when objects/events can be ranked and the differences are meaningful.
For example
W X Y Z
20 50 70 100

Thus, W, X, Y and Z are ranked according to ascending order.

Also, the difference between X-W and Z-Y=30.

Ratio Scale: most useful scale of measurement. Contain all the properties of other three types of
measurement scales.
It is applicable to almost every data.
It has a true zero. (Absence of characteristic)
e.g. zero kg of carrots means there are no carrots.
N.B Data obtained from interval scale or ratio scale is called quantitative data or numeric data.

Summary

Statistics is defined as the process of collecting a sample, organizing, analyzing and interpreting data. The
numeric values which represent the characteristics analyzed in this process are also referred to as statistics.
When information related to a particular group is desired, and it is impossible or impractical to obtain this
information, a sample or subset of the group is obtained and the information of interest is determined for the
subset. For instance someone is interested in the average annual income of all the students with majors in the
College of Business Administration at Fort Hare University, the only way this information could be obtained is
if the annual income of every student in this population could be collected, recorded and analyzed without error.
Since this would take considerable time and money, and since the probability of collecting the data necessary
to determine the true annual salary of the students is small, a sample of this population will be taken. The
sample mean annual salary of the sample of students will be determined and used to estimate the true mean
annual salary of all the students with majors in the College of Business Administration at Fort Hare University.

The study of statistics consists of two types: descriptive statistics and inferential statistics. Descriptive
statistics are characteristics, usually numeric, used to describe a particular data set. An example of a
descriptive statistic would be the average final exam grade of ten students in an elementary statistics class.
This average test score is used to indicate a “typical value” for the exam grades of the ten students. Inferential
statistics, on the other hand, are similar to descriptive statistics in that each is calculated from a sample, but
the difference is the use of the statistic. In inferential statistics, the statistic is used to make inference, or make
decisions, about the entire population of interest. In other words, we take a sample and calculate a statistic
and use that statistic to make inference about the actual value of the characteristic in the entire population.

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For instance, there are many descriptive characteristics of a firm’s customers that their management would
like to know but this information may be difficult or impossible to determine. Measurement of each and
every customer of a large retail firm is nearly impossible. Even if the information were gathered, it would
be unlikely that it would be timely. Unfortunately, managers do not always know what mean (average)
weekly demand for a product will be or what proportion of television viewers will watch a particular show.
Since these parameters of interest are not known, and usually impossible or impractical to determine, the
parameters will be estimated using partial information gathered from a sample.

A population includes all the elements of interest. We use the term “element” to represent each individual
unit of a group in which we have interest. For instance, elements may refer to people (i.e., customers),
records (i.e., all loan accounts at a particular bank), products (i.e., we are interested in the proportion
defective) etc. The notation used in statistics to represent the population size is “N”. In our example
above, the population of interest would be all the income earning residents of the county. Each of these
residents is an element in our population. If the population of the income earning residents in the county
was 50,000 then N = 50,000. The size of the population, N, is often not known.

A sample is a subset of the population. The notation for the sample size is “n”. In our previous example,
the sample would be the 200 residents we sampled out of all the income earning residents in the county.
In this case n = 200.

A parameter is a characteristic, usually numeric, of the population. Populations have many parameters but
researchers are often interested in only one or two of these characteristics. For instance, in our example
above, the parameter of interest is the population mean annual salary of all the income earning residents of
the county. The mean annual salary is but one of many other characteristics of this population that may be
of interest and could also be estimated. The proportion of these residents who support a particular school
bond issue and the mean age of the residents are two examples of other parameters that may be of interest.

A statistic is a characteristic, usually numeric, of the sample. Samples, like populations, also have many
statistics that may be calculated. For each parameter of a population, there is a corresponding statistic that
may be calculated from a sample. An important item to remember is that a statistic is a random variable
which indicates that each sample may result in many different values for the statistic. For instance, in the
example above, the statistic is the sample mean annual income of the 200 residents of the county. This
value is called the “sample mean” because it is calculated from the sample.

Although the sample mean is our “best guess” for the value of the population mean it is one of many possible
values that could be calculated from different samples of size 200. In other words, there are many samples
of 200 that could be collected from the population of 50,000 residents. Unfortunately, even if we take a
random sample of 200, we could end up with the most affluent 200 residents in the county. The sample
mean calculated from this sample would not be representative of the population. The possibility of collecting
a sample like this cannot be ignored. We will, however, learn to use statistical techniques that allow us to
estimate the probability of getting a value for the sample statistic that is not a good estimate of the population
parameter.

The use of statistics to estimate parameters of interest is not guaranteed to be successful. If the estimate
is not “good” the result could be a faulty decision that, in turn, could result in loss of time and/or revenue.
We must not allow quantitative techniques to make decisions for us, we must use these techniques only as
a tool to assist us in decision making.

Scale of Data Measurement: Before any statistical technique is employed, a researcher must determine
the type of data that is to be collected. In a general sense, there are two types of data: qualitative data
and quantitative data.

Qualitative data categorizes an element by a non-numeric attribute.

For instance, if we are interested in which political party a resident belongs to, we are categorizing the
resident using qualitative data: Democratic, Republican, Independent, etc. Qualitative data is often the data
we are interested in gathering in the social sciences and particularly in business. For instance, much of
what we want to know in business is related to attitudes or behavior of consumers. The data is not numeric
and therefore more difficult to analyze. We often calculate the proportion of elements with a particular
characteristic (i.e., the proportion of residents who own their own home) but many techniques cannot be
used on this type of data.

There are two types of qualitative data: nominal data and ordinal data. Nominal data is, in terms of
structure, the lowest form of data. Nominal data is qualitative data that has no natural order. Examples of
nominal data include: gender; political affiliation; type of car owned; product model; etc. Data comprised

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of “numbers” can also be qualitative data. Zip codes, area codes, telephone numbers are examples of data
that are qualitative. In math terms, these data are not “real” numbers because they do not represent
numeric measures. One way to determine whether “numbers” are numeric measures is to consider
whether one might be interested in an average of these “numbers”. If a number can be replaced with letters,
words or symbols without losing any information then this indicates that a “number” is NOT a numeric
measure. Ordinal data is qualitative data that has a natural order. Examples of ordinal data include:
military rank; size of clothing using S, M, L, XL; place in which a race was finished; condition of a used
appliance using POOR, AVERAGE, GOOD, EXCELLENT; etc. While ordinal data has an order, the
intervals between the rankings are not equal intervals. Thus, while ordinal data has more structure than
nominal data, math functions on the data, such as differences, are not valid.

Quantitative data categorizes an element by a numeric measure. Quantitative data are true numbers and,
as a result, more quantitative techniques are available for use with this data. Quantitative data can be
divided into two types of data: interval data and ratio data. Interval data is quantitative data that has no
natural starting point or zero level. Examples of interval data include Fahrenheit temperature and scores
on IQ tests. Each (of these type data) is a numeric measure but neither has a natural starting point or zero
level. Zero degrees Fahrenheit is not the absence of temperature just as there is no zero level for a test of
intelligence. Interval data can be used for any technique that requires quantitative data, however, we must
realize that ratios have no meaning with this type of data since there is no natural zero level. For example,
50 degrees Fahrenheit is not twice as warm as 25 degrees Fahrenheit. Ratio data is quantitative data that
has a natural starting point or zero level. Most quantitative data falls into this scale of data measurement.
Examples of ratio scaled data include height, weight, rate of return, net income, etc. Since there is a natural
zero level, ratios have meaning.

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Exercise

1. A survey amongst a random sample of 68 human resources (HR) managers of JSElisted companies
were asked to identify the performance appraisal system their company used. The options were: 1=a
trait method; 2=a behavioural method and 3=a results method. The survey found that only 15% used
the trait method; 39% used the behavioural method and 46% used the results method. The study aims
to describe the profile of performance appraisal systems used by all JSE companies.

a) Define the random variable of interest?

b) What is the population of interest?
c) What is the sample?
d) What is the sampling unit in this scenario?
e) Is the 46% who use the results method a parameter or a statistic?
f) Why is it important that the sample of 68 HR managers be randomly selected?

2. For each of the following random variables, state the data type of each random variable (i.e.
categorical or numeric); the measurement scale (i.e. nominal, ordinal, interval or ratio scaled) and
whether it is discrete or continuous. Also, give two illustrative data values for each of these random
variables.

a) The ages of athletes in a marathon.

b) The floor area of Pep Stores.
c) The highest qualification of employees in an organisation.
d) The marital status of employees.
e) The types of child abuse (physical, sexual, verbal, emotional)

3. Classify each of the following as nominal, ordinal, interval, or ratio-level data.

a) Rankings of golfers on the PGA tour

b) Lengths of babies born at Victoria Hospital
c) Hair color of students in a Statistics class.
d) ACT scores
e) Ribbon won by animals at the fair
f) Ages of people at the baseball game
g) Political affiliation of UFH faculty members
h) Temperature in a factory

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CHAPTER TWO

GRAPHICAL RESENTATION OF DATA

Data gathered from a sample must be organised and displayed in ways that make it understandable and
able to interpret the findings. This chapter examines various data summary methods and graphical
displays that will highlight patterns in the sample data and make them discernible at a glance.
N.B To make interpretation easier and avoid misrepresentation, all charts must
a) Be adequately labelled with headings and axes titles.
b) Have uniform scales (i.e. equal distance between constant differences.

2.1 PIE CHARTS/CIRCULAR DIAGRAMS

It is the simplest data representation in statistics. It is whereby area is proportional to
frequency.
Procedure

a) Draw a circle of any radius.

b) Find the total number of observations.

n
Thus, n   xi
i 1

xi
c) Express each observation in degrees. Thus,  360
 xi
Where x , represent one section of the data set.
 i represent summation of the observations.
x ,

d) Use the protractor to represent each observation on the pie chart.

Example
Construct a pie chart showing the percentage of 500 young female readers surveyed who most prefer
each of the following magazines.

Magazine Count
True Love 95
Seventeen 146
Heat 118
Drum 55
You 86

Solution
a) n  95  146  118  55  86  500
118 95
b)  360  85.96  86  360  68.4  68
500 500
146 86
 360  105.12  105  360  61.92  60
500 500
55
 360  39.6  40
500
c)

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STD121/121E 2023 – Business Statistics

Magazine

You
True Love

Drum

Seventeen

Heat

2.2 BAR CHARTS

It is a visual representation of date by means of bars or blocks put side by side with leaving spaces or not
in between bars.
• Normally used to represent discrete quantitative or qualitative data.
• The length if the bar is proportional to the frequency.
• Bars can be vertical or horizontal
• Absolute frequency or relative frequency can be used to construct a bar chart.
• Any width is chosen for the bars.
Example
Construct a bar chart showing the percentage of 500 young female readers surveyed who most prefer
each of the following magazines

Magazine Count
True Love 95
Seventeen 146
Heat 118
Drum 55
You 86
Solution

Magazine
160
140
120
100
80
60
40
20
0
True Love Seventeen Heat Drum You

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2.4 STEM AND LEAF DIAGRAMS
A very useful way of grouping data into classes whilst retaining the original data is to draw a
stem and leaf diagram.

• It cannot be used to represent grouped data set but used for raw data.
• It resembles the histogram or bar chart because the bars are made by individual data values.
• If the data is very large within the limited range, split the data values into lower and upper
leaves.
• For stem and leaf diagrams classes must be of equal width.
• The stem could be used to represent tens and the leaf, units.
• The leaves are then arranged in numerical order.
• A key is given finally to explain how the diagram has been formed.
• A stem and leaf diagram can easily show the smallest and largest values.
• Also, the modal class.

Example: From the data below, draw a stem and leaf diagram.
2, 5, 9, 11, 21, 18, 19, 25, 21, 23, 124

Solution
Sketch Diagram

STEM LEAF
0 2,5,9
1 1,8,9
2 1,5,1,3
12 4

Final Diagram
STEM LEAF

0 2,5,9
1 1,8,9
2 1,1,3,5
12 4

KEY
0/2 means 2

BACK TO BACK STEM PLOTS

Stem and leaf diagrams can be used to compare two samples by showing the results together on a back-to-
back stem plot.

2.5 FREQUENCY DISTRIBUTION

It is a table which summarizes ratio-scaled data either continuous or discrete in nature into intervals or
classes each with a corresponding frequency.
The class frequencies reflect the number of occurrences of data values that fall within the class limits.
PROCEDURE:
FIVE STEPS IN THE CONSTRUCTION OF A FREQUENCY DISTRIBUTION
1. Determine the data range
Range is defined as the difference between the maximum and minimum data values in a
data set.
Thus, Range =maximum value-minimum value

2. Decide on the number of classes (Intervals)

There is no rule which determines how many classes should be used.
As a guide, the choice should be between 5 and 8 classes. If too few classes are used
much information is lost and therefore number of classes should be used.

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Sturges’ Rule can be applied to assist with this decision.
Thus,

2k  n where n  the sample size. (Number of data values)

k  the number of classes.

The task is to find k which satisfies the inequality.

3. Determine the class width

Thus, lower limit - upper limit.
Use the range divided by the number of classes selected as a guide to class width.
For the actual class width, select a value which is close to the calculated value, but which
is easy to work with and preferably an integer.

4. Determine class limits (class boundaries)

The lower limit of the first class should be a value smaller than or equal to the minimum data value.
The lower limits of successive classes are found by adding the class width to each preceding lower limit.
The upper limits are chosen to avoid any overlap between adjacent class limits

5. Tabulate the data values

Use the tally system to tabulate the data values.
The number of observations assigned to each class is called the absolute frequency
(written as fi ).
The sum of the absolute frequencies must equal the total number of observations.
Example 1

A random sample of 100 households in a town was selected and their monthly town gas consumption (in
cubic metres) in last month were recorded as follows:

55 82 83 109 78 87 95 94 85 67
80 109 83 89 91 104 90 103 67 52
107 78 86 29 72 66 92 99 60 75
88 112 97 88 49 62 70 66 88 62
72 85 81 78 77 41 105 92 94 74
78 75 87 83 71 99 56 69 78 60
119 39 104 86 67 79 98 102 82 91
46 120 73 125 132 86 48 55 112 28
42 24 130 100 46 57 31 129 137 59
102 51 135 53 105 110 107 46 108 117

A useful method for summarizing a set of data is the construction of a frequency table, or a frequency
distribution. That is, we divide the overall range of values into a number of classes and count the number of
observations that fall into each of these classes or intervals.

The general rules for constructing a frequency distribution are:

(i) There should not be too few or too many classes.

(ii) Insofar as possible, equal class intervals are preferred. But the first and last classes can be open-ended to
cater for extreme values.

In example 1, the sample size is 100 and the range for the data is 113 (137 - 24). A frequency distribution
with six classes is appropriate and it is shown below.

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Frequency distribution of household town gas consumption

Town gas monthly

consumption Number of
( in cubic metres) households

20 - 39 5
40 - 59 15
60 - 79 25
80 - 99 30
100 - 119 18
120 - 139 7
Total 100

Class limits: are the numbers that typically serve to identify the classes in a listing of a frequency distribution.
Thus, in the above frequency distribution, for the class whose frequency is 30, its lower class limit is 80 and
upper class limit is 99.

As contrasted to a class limit, a class boundary is the precise point that separates one class from another,
rather than being a value indicated in one of the classes. A class boundary is typically located midway
between the upper limit of a class and the lower limit of the next higher class adjoining it. Therefore the class
boundary separating the class 60-79 and the class 80-99 is halfway between 79 and 80, that is, at the point
79.5.

Class interval: is the width of a class. The class interval of a class is computed by subtracting the lower limit
(boundary) of the class from the lower limit (boundary) of the next class.

Class midpoint or class mark: is the point dividing the class into equal halves on the basis of class interval.
This point can be obtained by adding the lower and upper limits (boundaries) of a class and dividing by 2.

Relative frequency of a class: is the frequency of the class divided by the total frequency of the distribution.

Cumulative frequency distribution: shows the number of items of a series that are less than (or more than)
certain specified values.

2.6 HISTOGRAM
It is a picture of the frequency distribution which resembles a bar chart except for the following features:
a) The bars/rectangles are continuous.
b) Normally used to represent continuous data.
c) Area of rectangles drawn should be proportional to the frequency.
d) When all the class intervals are of equal width, the frequency can be used for the height of each rectangle.
e) However, if the class intervals are of unequal class width, the frequency density is labelled on the vertical
axis.

Frequency
Where frequency density 
Class Width

f) Modal class = interval with greatest frequency density.

g) Most useful way of representing data.

2.7 FREQUENCY POLYGON

A grouped frequency distribution can be displayed on a frequency polygon.
It is drawn in such a way that the area under the frequency polygon  the total area of the rectangles of the
histograms.
A frequency polygon is drawn by plotting the midpoints of class intervals against the frequency.

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OR
By joining the midpoints of each class interval at the top of each bar on a histogram. Finally, join the points
with straight lines.
To “Anchor” the Frequency Polygon
a) Create an interval below the lower interval at zero frequency.
b) Create an interval above the upper interval at zero frequency.
c) The mid-points of these zero frequency classes are used as the anchor values.

2.8 CUMULATIVE FREQUENCY

The cumulative frequency is the total frequency up to a particular upper class boundary. Thus, cumulative
frequency  sum of previous frequencies and the current class frequency.
Cumulative frequency table can be shown in a diagram in which the cumulative frequencies are plotted
against the upper class boundaries and the points are joined as follows:
For a Cumulative Frequency Polygon
Points are joined with straight lines.
For a Cumulative Frequency Curve
Points are joined with a smooth curve.

Example
Given the following data set:
a) Draw a stem and leaf diagram using lower and upper leaves.
b) Formulate a frequency distribution.

305 444 394 193 235 334 321 367 239 167
115 249 378 359 237 275 311 378 421 313
433 208 309 306 173 488 157 282 217 216
232 354 236 400 538 214 277 237 242 167
289 406 267 404 152 271 318 120 277 214

Solution
a)
STEM LEAF
1 15,20
1 52, 57, 67, 67, 73, 93
2 08, 14, 14, 16, 17, 32, 35, 36, 37, 37, 39, 42, 49
2 67, 71, 75, 77, 77, 82, 89
3 05, 06, 09, 11, 13, 18, 21, 34
3 54, 59, 67, 78, 78, 94
4 00, 04, 06,-21, 33, 44
4 88
5 38
Key
4| 06 means 406

b) The Frequency Distribution

Step 1

Range  maximum value – minimum value

 538 – 115
 423

Step 2
Number of classes: Using Sturges’ rule

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k
2 n
log n log 50 1.69897
k    5.6439
log 2 log 2 0.30103

Hencek  5.6439 meaning that, k  6 is the solution, since

6
2  50 . Therefore, it is most likely that there are going to be 6 classes.

Step 3

Class Width: Range divided by number of classes

423  6  70.5
 Class width 100
Step 4

Class Intervals/Class boundaries

100 to < 200
200 to < 300
300 to <400
400 to < 500
500 to < 600

Step 5: Tabulate the data values

Class Intervals Tally Frequency

100 to <200 |||| ||| 8
200 to <300 |||| |||| |||| |||| 20
300 to <400 |||| |||| |||| 14
400 to <500 |||| || 7
500 to <600 | 1
n   fi  50

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STD121/121E 2023 – Business Statistics
EXERCISE
1. Keen competition exists amongst fast food outlets for the food-spend of consumers. A recent survey
established consumers’ preferences for various fast food outlets and type of fast foods (i.e. chicken,
pizzas, beef burgers and fish).
Fast Food Outlet Count
KFC (Chicken) 56
St Elmo’s Pizza 58
Steers (Beef Burgers) 45
Nandos (Chicken) 64
Ocean Basket (Fish) 24
Butler’s Pizza 78
a) Construct a pie chart to show customers’ preferences for different fast food outlets.
b) Construct a bar chart to show customers’ preferences for different fast food outlets.

2. The monthly rentals per square meter for office space in 30 buildings in East London
(in Rand) are:

189 156 250 265 195 300

350 315 290 285 165 178
415 280 212 580 395 360
285 225 230 450 185 193
580 248 460 250 520 300

a) Draw a stem and leaf diagram using lower and upper leaves.
b) Formulate a frequency distribution.
c) Draw a histogram.
d) Draw an anchored frequency polygon.
e) Draw a cumulative frequency curve.

3. A random sample of 100 households in a town was selected and their monthly town gas consumption
(in cubic metres) in last month were recorded as follows:

85 82 83 109 78 87 95 94 85 67
80 109 83 89 91 104 90 103 67 52
107 78 86 99 72 66 92 99 80 75
88 112 97 88 49 62 70 66 88 62
72 85 81 78 77 41 105 92 94 74
78 75 87 83 71 99 56 69 78 60
117 39 104 86 67 79 98 102 82 91
46 120 73 125 132 86 48 55 12 28
42 124 130 100 46 57 31 129 17 59
102 51 135 53 105 110 107 46 108 67
a) Draw a stem and leaf diagram using lower and upper leaves.
b) Formulate a frequency distribution.

4. Daily earnings of a sample of twelve individuals are shown below:

100, 126, 138, 142, 148, 150, 168, 182, 191, 193, 195, 199

Summarize the above data by constructing:

a. a frequency distribution
b. a cumulative frequency distribution
c. a relative frequency distribution
d. a cumulative relative frequency distribution
e. a histogram
f. an ogive

14
STD121/121E 2023 – Business Statistics
cumulative relative cumulative
Class frequency frequency frequency relative frequency
100 - 119
120 - 139
140 - 159
160 - 179
180 - 199

5. The test scores of 14 individuals on their first statistics examination are shown below:

95 87 52 43 77 84 78
75 63 92 81 83 91 88

a) Construct a stem-and-leaf display for these data.

b) What does the above stem-and-leaf show?

6. The average grades of 8 students in professor Ahmadi’s statistics class and the number of absences
they had during the semester are shown below:

Number of Average
Absences Grade
Student (x) (y)
1 1 94
2 2 78
3 2 70
4 1 88
5 3 68
6 4 40
7 8 30
8 3 60

Develop a scatter diagram for the relationship between the number of absences (x) and their average
grade (y).

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STD121/121E 2023 – Business Statistics
CHAPTER THREE
MEASURES OF CENTRAL TENDENCY/ CENTRAL LOCATION

3.0 INTRODUCTION
The position or location of a distribution can be characterized by its centre or central tendency.
The mean, median and mode are three main measures of central tendency used in statistics. These
measures give an idea of the average or typical value of set of observations where the observations tend
to cluster.

In statistics there are basically 2 types of measurements: a) measures of central tendency and b)
measures of variation.
• Measure of Central Tendency
a. Population Mean
b. Population /Sample
c. Median
d. Mode

3.1.1 MEAN FOR UNGROUPED DATA

The mean is defined as

The sum of all the observations

x
The number of observations

Having a sample,
x 1, x 2 , x 3 ,....x n .
Mean can be also expressed as


n
xi
x  i 1

n
Where,
n  the number of observations in the sample.
x i  the value of the i th observation of a random variable x.
x  the mean.
Example (calculating mean for ungrouped data)

The following table shows the hourly wage rates of eight sampled construction workers.

Worker i 1 2 3 4 5 6 7 8
Hourly wage rate ( xi ) $35 $38 $46 $60 $65 $69 $72 $78

∑x i
x1 + x 2 + x3 + x 4 + x5 + x6 + x7 + x8
Mean (x) = i =1
(= )
8 8

463
= = 57.875 ($)
8
3.1.2 MEAN FOR GROUPED DATA
If the data is in the form of a frequency distribution we use the following formula:


m
fx
i 1 i i
x 
n

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STD121/121E 2023 – Business Statistics

Where m  number of classes in the frequency distribution.

n  the number of observations in the sample
x i  the midpoint value for the i th class.
fi  frequency for the i th class.

Example (calculating mean for grouped data)

The following table shows the daily wages of a random sample of construction workers. Calculate its mean.

Daily Wages ($) Number of Workers

200 - 399 5
400 - 599 15
600 - 799 25
800 - 999 30
1000 - 1199 18
1200 - 1399 7
Total 100

Solution

Number of
Daily Wages ($) Workers Class Mark f i xi
fi xi
200 - 399 5 299.5 1,497.5
400 - 599 15 499.5 7,492.5
600 - 799 25 699.5 17,489.5
800 - 999 30 899.5 26,985.5
1000 - 1199 18 1,099.5 19,791.0
1200 - 1399 7 1,299.5 9,096.5
Total 100 82,350.0

∑fx i i
82,350.0
Mean (x) = i =1
= = 823.5 ($)
6
100
∑f
i =1
i

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 STD121/121E 2023 – Business Statistics

3.1.3 ADVANTAGES AND DISADVANTAGES OF MEAN

Advantages: (i) All values in the distribution are used in its calculation, so it can be regarded
as more representative than the other two measures.
(ii) Its method of calculation is simple and most people understand the meaning
of its result.
(iii) Its result can easily be used in further analysis.

Disadvantages: (i) Its result can be easily distorted by extreme values. As such, its result may be
rather lower or higher than the bulk of the values and becomes
unrepresentative.
(ii) In case of open end classes, mean can be calculated only if their class marks
are determined. If such classes contain a large proportion of the values, then
the mean may be subjected to substantial error.

3.2.1 MEDIAN FOR UNGROUPED DATA

It is the middle value when the distribution is ordered/arranged according to descending or ascending order.
a) When n is odd, the median value is found in the  
n1 th
2
ordered position.

b) If n is even, the median value is found by identifying the  n2  th data value and
averaging it with the next consecutive data value.
Example:
Given the following unordered data set, 27, 38, 12, 36, 42, 40, 24, 40, 23
The ordered data set becomes:

12, 23, 24, 27, 36, 38, 40, 40, 42

The median position is n

2
1
 91
2
 5 th position.
Therefore, the median value is the data value in the 5 th position. Thus, Median = 34.
Example:
Given the following unordered data set, 27, 38, 12, 36, 42, 40, 24, 40, 23, 18
The ordered data set becomes:

12, 18, 23, 24, 27, 36, 38, 40, 40, 42

The median position starts at the n

2
 11
2
 5.5 th position.
The median value is the average of the data values in the 5th and 6th positions.
(27 + 36)
That is, median= (27 + 36)= 31, 5.

3.2.2 MEDIAN FOR GROUPED DATA

From the numeric frequency table or frequency distribution,

n
• Compute 2
t0 identify the median position.
• Identify the median interval.
• Using the frequency table or frequency distribution, the median interval is that class interval
n th
into which the 2
observation falls.
• This median interval is found by summing the class frequencies from the lowest class until the
n
cumulative frequencies either equal or just exceed 2
(i.e. half the data values).
• Compute the median value using the formula below:

n 2  f ()
 
Me  Ome c 
fme

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 STD121/121E 2023 – Business Statistics
Where,
Ome  lower limit of the median interval.
c  class width.
n  sample size (number of observations).
fme  frequency count of the median interval.
f ()  cumulative frequency count of all intervals before the median interval

Example (calculating median for grouped data)

The following table shows the daily wages of a random sample of construction workers. Calculate its
median.

Daily Wages ($) Number of Workers

200 - 399 5
400 - 599 15
600 - 799 25
800 - 999 30
1000 - 1199 18
1200 - 1399 7
Total 100

Solution

Daily Wages ($) Number of Workers Cumulative Frequency

fi Fi
200 - 399 5 5
400 - 599 15 20
600 - 799 25 45
800 - 999 30 75
1000 - 1199 18 93
1200 - 1399 7 100
Total 100

As 0.5n = 0.5(100) = 50, so the median lies in the 4th class.

n 2  f ()
 
Median = M e  Ome c 
fme
where Ome  lower limit of the median interval,
c is the class interval.

0.5(100) − 45
= 799.5 + (200) = 832.8 ($)
30

3.2.3 ADVANTAGES AND DISADVANTAGES OF THE MEDIAN

Advantage: Its result will not be affected by extreme values and open end classes.

Disadvantage: It has to be supplemented by other statistics because it does not reflect the
distribution in the way that the mean does, that is, including all values.

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 STD121/121E 2023 – Business Statistics
3.3.1 MODE FOR UNGROUPED DATA
It is the observation with the highest frequency.

3.3.2 MODE FOR GROUPED DATA

The modal value is weighted by the relative frequencies of the adjacent class intervals.
The modal value formula is given by:

c( fm  fm 1 )
M o  Omo 
2 fm  fm 1  fm 1

Where
Omo  lower limit of the modal class interval.
c  width of the modal class interval.
fm  frequency of the modal class.
fm 1  frequency of the class preceding the modal interval.
fm 1  frequency of the class following the modal interval.

Example (calculating mode for ungrouped data)

The following table shows the hourly wage rates of eight sampled construction workers.

Worker i 1 2 3 4 5 6 7 8

Hourly wage rate ( xi ) $35 $38 $46 $60 $65 $69 $72 $38

Mode: $38

Example (calculating mode for grouped data)

The following table shows the daily wages of a random sample of construction workers. Calculate its mode.

Daily Wages ($) Number of Workers

200 - 399 5
400 - 599 15
600 - 799 25
800 - 999 30
1000 - 1199 18
1200 - 1399 7
Total 100

Solution

Number of Class Interval Relative Density

Daily Wages ($) Workers ci fi
fi' = (200)
fi ci

200 - 399 5 200 5

400 - 599 15 200 15
600 - 799 25 200 25
800 - 999 30 200 30
1000 - 1199 18 200 18
1200 - 1399 7 200 7
Total 100

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 STD121/121E 2023 – Business Statistics

As f 4' = 30 is the largest relative density, so mode lies in the 4th class.

f 4' − f 3' c( fm  fm 1 )
Mode = L4 + ( c 4 ) OR M  O 
( f 4' − f 5' ) + ( f 4' − f 3' ) o mo
2 fm  fm 1  fm 1

30 − 25
= 799.5 + (200) = 858.3 ($)
(30 − 18) + (30 − 25)

.3.3 ADVANTAGES AND DISADVANTAGES OF THE MEDIAN

Advantages: (i) Its result will not be affected by extreme values and open end classes.
(ii) If data are not grouped, it can be determined easily.
Disadvantages: (i) It has to be supplemented by other statistics.
(ii) It is difficult to obtain an accurate estimate of the mode if the values are
classified into a frequency distribution.
Example:
A restaurant owner randomly selected and recorded the value of meals enjoyed by 20
diners on a given day. The values of meals (in Rands) were:

44 65 80 72
90 58 44 47
48 35 65 56
36 69 48 62
51 55 50 44

a) Define the random variable and its data type.

b) What is the mean value of a meal at the restaurant?
c) What is the median value of a meal at the restaurant?
d) What meal value occurs most frequently?
e) Which central location measure would you choose? Why?

Solution:
a) Value of meals is the random variable.
Data type: quantitative or numeric, ratio-scaled and continuous.
b) It is important to note that we are having ungrouped data, as a result we have to apply ungrouped data
formula.
Mean


n
xi 1119
x  i
  R55.95 .
n 20

c) Drawing a stem and leaf diagram helps to arrange the data in ascending order easily.

STEM LEAF
3 5,6
4 4,4,4,7,8,8
5 0,1,5,6,8
6 2,5,5,9
7 2
8 0
9 0
Key: 3| 6 means 36

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 STD121/121E 2023 – Business Statistics
Since n  20 (even)
n 20
   10 th position
2 2
Now, 2  R53.00
5155

d) Mode  R44.00
e) Median is the best representative of central location measure because it is not affected by the outliers
like the mean.

Example:
Consider the time (in minutes) it takes a courier service deliver parcels from its depot in East
London to its customers in Durban. A sample of 30 delivery times was taken last month. The
frequency counts for delivery times are given in the table below.

TIME FREQUENCY
5 -< 10 3
10 -<15 5
15 -< 20 9
20 -< 25 7
25 -< 30 6

a) Find the mean time taken by the courier service company to deliver parcels to its Durban based
customers.
b) Find the median and mode time taken by the courier service company to deliver parcels to its Durban
based customers

Solution
a)

Cumulative
Time Frequency ( fi ) Midpoints (x i ) ( fi )(x i )
Frequency
5-<10 3 3 7.5 22.5
10-<15 5 8 12.5 62.5
15 -<20 9 17 17.5 157.5
20-<25 7 24 22.5 157.5
25 -<30 6 30 27.5 165
5
n   fi  30 fx i i
 565
i 1

fx i i
565
Mean  x  i 1
  18.833333333
n 30
Therefore, mean delivery time = 18. 83 minutes.

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 STD121/121E 2023 – Business Statistics
b)

TIME FREQUENCY ( fi ) CUMULATIVE FREQUENCY

5 -< 10 3 3
10 -< 15 5 8
15 -< 20 9 17
20 -< 25 7 24
25 -< 30 6 30
n   fi  30

n 30
  15
2 2

Which implies that the median interval  15  20

c  20  15  5
fme  9
f ()  8
Ome  15
n 2  f ()  30 2  8
   
Me  Ome c  15  5   18, 88888889
fme 9

Therefore, median delivery time = 18.89 minutes.

Modal class  15  20 .
Omo  15
fm  9
fm 1  5
fm 1  7

c( fm  fm 1 ) (9  5)
M o  Omo   15  5  18.33333
2 fm  fm 1  fm 1 2.9  5  7
Therefore, the modal delivery time  18.33 minutes
Summary

The three most common measures of central tendency are the mean, the median and the mode. All three

of these measures are referred to as “average” or “typical” values although they are each different measures

of typical.

The first, and most popular, measure of central tendency is the arithmetic mean, hereafter referred to as

simply the mean. The mean is calculated as the sum of the observations divided by the number of

observations. The sample mean is denoted x and the formula for calculating the sample mean is:

23
STD121/121E 2023 – Business Statistics

x=
∑x . The population or true mean is denoted µ (the Greek script letter “mu”) and is calculated the
n

same way as the sample mean except that all elements in the population are measured. The mean requires

at least interval scaled data which means it is only valid for true numeric measures. The mean is often

referred to as the “gravitational center of the data set” which is similar to the balancing point of the data.

If equal weights were placed on a scale representing a number line for each observation in a data set, the

mean would be the point at which the scale balances. Since each observation has an equal weight, the

magnitude of the values influence the mean. The mean, while certainly the most commonly used measure

of central tendency, is not always a good measure of “typical.” For instance, data sets that include extreme

values relative to the rest of the data “pull” the mean in that direction. Extremely small values cause the

mean to be “small” and extremely large values cause the mean to be “large.” The result is that the mean is

not a “good” measure of typical and in fact, may be larger or smaller than all values except the extreme one.

When extreme values occur in a data set, we often use another measure of typical referred to as the median.

For instance, attempts to find a typical income often is best expressed as the median income rather than

the mean income since there is a lower limit (zero) but not an upper limit on income.

The median is the second most commonly used measure of central tendency and is referred to as the

positional average. The median is the center value in an ordered data set. If the data set has an odd

number of observations then the median is the value found in the center of the distribution of ordered values.

If the sample set has an even number of values then the median is the mean of the two values surrounding

the center of the data set. The median is also P50, the fiftieth percentile. This means that 50% or half of the

values are smaller than the median and half of the values or 50% are greater than the median. The

procedure for finding the median is:

1. Order the data set from smallest to largest (or largest to smallest). NOTE: this requires that

the data can be ordered so the median cannot be found for nominal data.

2. Find i, which is the location or position of the median. This position can be calculated by using

n +1
the following formula: i = , where n is the size of the sample.
2
3. If i is an integer then the median is the value found at the ith position in the ordered data set. If

i is not an integer, then the median is the mean of the two values surrounding the ith position.

The median is often denoted as M or ~

x.

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STD121/121E 2023 – Business Statistics
The last of the more common Measures of Central Tendency is called the mode. The mode is the most

commonly occurring value in a data set, in other words, the value that occurs with the greatest frequency.

The mode, unlike either the mean or the median, does not have to be unique. A data set can have more

than one mode or no mode at all. A data set with: one mode is referred to as unimodal; two modes is

referred to as bimodal; and three or more modes is referred to as multimodal. There is no universal notation

for the mode and the mode is valid for any type of data.

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 STD121/121E 2023 – Business Statistics
EXERCISE
1. The human resource department of a company recorded the number of days absent of 23 employees in
the technical department over the past 9 months.
5 4 8 17 10
9 30 5 6 15
2 16 15 18 4
12 6 6 15
10 10 9 5
a) Find the mean, median and modal number of days absent over this 9-month period.
b) Interpret each central location measure.

2. A fish shop owner recorded the daily turnover of his outlet for 300 trading days as shown in the frequency
table.

DAILY TURNOVER No. OF DAYS

500 -< 750 15
750 -< 1000 23
1000 -< 1250 55
1 250 -< 1500 92
1 500 -< 1750 65
1750 -< 2000 50

a) Compute and interpret the average daily turnover of the fish shop.
b) Find the median daily turnover of the fish shop. Interpret its meaning.
c) What is the modal daily turnover of the fish shop?

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 STD121/121E 2023 – Business Statistics
CHAPTER FOUR
MEASURES OF DISPERSION OR NON-CENTRAL TENDENCY

4.0 INTRODUCTION
Dispersion or spread refers to the extent to which the data values scatter about their central location
value.

WHY MEASURE DISPERSION?

Dispersion is a measure of data variability. This influences the confidence that an analyst can have in the
representativeness and reliability (stability) of central location measures. Widely spread data values
indicate low reliability and less confidence in the central location as a representative measure for a sample
of data.
Conversely, a high concentration of data values about their central location indicates high reliability and
greater confidence in the representativeness of the central location value.

In this module we are going to discuss on:

• The Range,
• Lower and Upper quartiles for both grouped and ungrouped data,
• Variance and standard deviation for both grouped and ungrouped data.

4.1 RANGE

Is the difference between the highest and lowest data values in a data set.
Thus, Range  max value – min value.

R  x max  x min
Example

The following table shows the hourly wage rates of eight sampled construction workers.

Worker i 1 2 3 4 5 6 7 8
Hourly wage
rate ( xi ) $35 $38 $46 $60 $65 $69 $72 $78

Solution

The range is $78 - $35 = $43.

4.2 LOWER QUARTILE FOR UNGROUPED DATA

Steps to follow when computing lower quartile for ungrouped (raw) data.

• Sort the data either in ascending or descending order.

• Identify the lower quartile position irrespective of whether n is odd or even using the formula
below:

(n  1)  0.25 th

• Round down your solution to the nearest integer.

• Count to the lower quartile position to find the approximate lower quartile value.

4.2.1 LOWER QUARTILE FOR GROUPED DATA

If the numeric data values are summarized into a frequency distribution, a formula similar to the median
formula for grouped data can be used.
The formula is modified to identify the appropriate quartile position, which is then used to find the
corresponding lower quartile interval.
The lower quartile position is n4 and the formula is;

27
 STD121/121E 2023 – Business Statistics

n 4  f ()
 
Q1  Oq 1  c 
fq 1

Where
Oq 1  the lower limit of the lower quartile interval.
n the sample size.
f ()  the cumulative frequency of the interval before the lower quartile interval.
c  the class width.
fq 1  the frequency of the lower quartile interval.

4.3 UPPER QUARTILE FOR UNGROUPED DATA

Steps to follow when computing upper quartile for ungrouped (raw) data.

• Sort the data either in ascending or descending order.

• Identify the upper quartile position irrespective of whether n is odd or even using the formula
below:

(n  1)  0.75 th

• Round down your solution to the nearest integer.

• Count to the upper quartile position to find the approximate upper quartile value.

4.3.1 UPPER QUARTILE FOR GROUPED DATA

If the numeric data values are summarised into a frequency distribution, a formula similar to the median
formula for grouped data can be used.
The formula is modified to identify the appropriate quartile position, which is then used to find the
corresponding upper quartile interval.
The upper quartile position is 34n and the formula is;

 3n 4  f ()
 
Q3  Oq 3  c 
fq 3

Where
Oq 3  the lower limit of the upper quartile interval.
n  the sample size.
f ()  the cumulative frequency of the interval before the upper quartile interval. c= the class width.
fq 3  the frequency of the upper quartile interval.

4.4 PERCENTILES
A percentile is a data value below which a specified percentage of data values in an ordered data set will
fall.
Percentiles are used to identify various non-central location positions in a sample of data. Quartiles are
examples of specific percentiles:

• The lower (or first) quartile is the 25th percentile.

• The median (or middle, or second quartile) is the 50th percentile, and
• The upper (or third) quartile is the 75th percentile.

Relationship between quartiles and percentiles

1st. quartile 25th percentile

2nd. quartile 50th percentile (Median)

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 STD121/121E 2023 – Business Statistics
3rd. quartile 75th percentile
4th. Quartile 100th percentile

*Notice that the 2nd quartile or 50th percentile is the same as the median.

The idea can be extended to any percentage of values below a given data value:
• The 30th percentile would represent that value in an ordered data set such that 30% of all data
values will fall below this value and the balance, namely 70% will lie above
it.
• The 80th percentile would represent that value in an ordered data set such that 80% of all data
values will fall below this value and the balance, namely 20% will lie above it
Formula: Sort the data either in ascending or descending order.
• Identify the percentile position irrespective of whether n is odd or even using the formula below:

(n  1)  0.9 for the 90th percentile position.

• Round down your solution to the nearest integer.

• Count to the percentile position to find the approximate percentile value.

4.5 INTER QUARTILE RANGE

It is the difference between the upper and lower quartiles in a set of sample data values.
It therefore identifies the range (distance) of data values between the lower quartile and upper quartile
positions only.
This range measures the information grouped within 25% and 75% of the data set, leaving out the data
above and below the limits. It’s more accurate than the range, but still presents an important weakness:
None of these two formulae use all the data for computations.

Inter Quartile Range (IQR)  Q3  Q1

Advantages of the Inter quartile range

• The Inter quartile range removes some of the instability inherent in the range if outliers (or extreme
data values) are present.

This modified range excludes these outliers and focuses on the spread of the middle 50% of the data values.
It is therefore a more stable measure of dispersion than the range.

Disadvantages of the Inter quartile range

• It excludes the outer 50% of the data values (25% below Q1 and 25% above Q3 ).

Example
A restaurant owner randomly selected and recorded the value of meals enjoyed by 20 diners on a given
day. The values of meals (in Rands) were:
44 65 80 72
90 58 44 47
48 35 65 56
36 69 48 62
51 55 50 44

a) What is the range value of a meal at the restaurant?

b) What is the first quartile and third quartile value of a meal at the restaurant?
c) What is the inter quartile range value of a meal at the restaurant?
d) Find the 90th percentile value of a meal at the restaurant.

29
 STD121/121E 2023 – Business Statistics
Solution

a) Drawing a stem and leaf diagram helps to arrange the data in ascending order easily.

STEM LEAF
3 5,6
4 4,4,4,7,8,8
5 0,1,5,6,8
6 2,5,5,9
7 2
8 0
9 0

Key

3| 6 means 36
Now, Range = Max value — Min value =90—35 =55

(Q1 )  (n  1)  0.25 th position

b) First quartile
= (20  1)  0.25 th position
= 5.25th position
= 5th position
= 44 (thus, data value in the 5th position)

Third quartile(Q1 )  (n  1)  0.75 th position

= (20  1)  0.75 th position
= 15.75th position
= 15th position
= 65

c) Inter quartile range; IQR  Q3  Q1  65  44  21

d) 90th percentile value (n  1)  0.9 th position

= (20  1)  0.9 th position
= 18 th position
= 72

4.6 BOX AND WHISKER DIAGRAMS OR BOX PLOTS

The box and whisker diagram or box plot illustrates the dispersion or spread of the distribution.

It uses the maximum and minimum values of the data, the quartiles (Q1 andQ3 ) the median Q2 .
It is very important because it shows the central tendency.
The “box” extends from Q1 to Q3 and so encloses the middle 50% of the data.
The “whiskers” extend from the upper quartile to the maximum value and from the lower
quartile to the minimum value.
It can be drawn vertically or horizontally.

To construct a box and whisker diagram or box plot

• A number line is drawn covering the range of the data.
• A vertical line is drawn at Q1 ,Q2 and Q3 to form a box.
• Two horizontal lines (whiskers) are extended from either side of the box.
• The front whisker goes fromQ1 to the lowest value and the back whisker goes fromQ3 to the highest
value.

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 STD121/121E 2023 – Business Statistics
VERTICAL REPRESENTATION

Highest value (maximum)

The ‘box’ extends from Q1 to Q3

and so encloses the middle 50%
of the data

Upper quartile (Q3)

Median
The ‘whiskers’ extend from the
Lower quartile (Q1) box to the highest and lowest
values and illustrate the range of
the data

Lowest value (minimum)

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 STD121/121E 2023 – Business Statistics
4.7 VARIANCE AND STANDARD DEVIATION FOR UNGROUPED DATA

4.7.1 VARIANCE
The most useful and reliable measures of dispersion to capture variability are those that

• Take every data value into account in their calculations, and

• Are based on an average measure of deviation from the central value.

The variance is such a measure of dispersion (or spread). It is the most commonly used measure of
dispersion and is a powerful statistic used extensively to capture variability. In financial analysis, for example,
variance is universally used as a measure of risk in portfolios.

To calculate the variance

a) Compute the sample mean.
b) Compute the deviation of each data value from the mean.
c) Square these deviations.
d) Sum these squared deviations.
e) Finally, average the squared deviations by dividing the sum of the squared deviations by n  1 .

Formula
In formula terms, the variance for sample data can be expressed as:

 (x
2
2Sum of squared deviations x)
Variance(S )   i

(Sample size  1) n 1

4.7.2 STANDARD DEVIATION

Expresses dispersion as computed by the variance in the original units of the random variable.
A standard deviation is found by taking the square root of the variance, i.e.

Standard deviation  Variance

s  S2
Formula
Thus, the mathematical formula for a standard deviation of sample data is the square root of the variance
formula, as follows:

s
 (x i
 x )2
(n  1)

Example

A restaurant owner randomly selected and recorded the value of meals enjoyed by 20 diners on a given
day. The values of meals (in Rands) were:

44 65 80 72
90 58 44 47
48 35 65 56
36 69 48 62
51 55 50 44

a) Find the variance of a meal at the restaurant.

b) Find the standard deviation of a meal at the restaurant.

Solution

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 STD121/121E 2023 – Business Statistics
x xi  x (x i  x )2
35 35 - 55.95 = -20.95 438.9025
36 36 - 55.95 = -19.95 398.0025
44 44 - 55.95 = -11.95 142.8025
44 44 - 55.95 = -11.95 142.8025
44 44 - 55.95 = -11.95 142.8025
47 47 - 55.95 = -8.95 80.1025
48 48 - 55.95 = -7.95 63.2025
48 48 - 55.95 = -7.95 63.2025
50 50 - 55.95 = -5.95 35.4025
51 51- 55.95 = -4.95 24.5025
55 55 - 55.95 = -0.95 0.9025
56 56 - 55.95 = 0.05 0.0025
58 58 - 55.95 = 2.05 4. 2025
62 62 - 55.95 = 6.05 36. 6025
65 65 - 55.95 = 9.05 8 1.9025
65 65 - 55.95 = 9.05 81.9025
69 69 - 55.95 = 13.05 170.3025
72 72 - 55.95 = 16.05 257. 6025
80 80 - 55.95 = 24. 05 578.4025
90 90 - 55.95 = 34.05 1159.4025
20

 (x i
 x )  3902.95
i 1

3902.95
a) Variance   205.4184211  205.42 correct to 2 d.p
20  1

b) Standard deviation  205.4184211  14.33242551  14,33 to 2d.p

4.8 VARIANCE AND STANDARD DEVIATION FOR GROUPED DATA

4.8.1 VARIANCE
The formula is given by:
k

 f (x i i
 x )2
i 1

n 1
Where

x i is the midpoint of the class interval or repeated values in any data set.
x is the mean
n  number of observations in the sample.

4.8.2 STANDARD DEVIATION

A standard deviation is found by taking the square root of the variance, i.e.
Standard deviation  Variance

s  S2
The mathematical formula is;

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 STD121/121E 2023 – Business Statistics
k

 f (x i i
 x )2
i 1

n 1

Example:
Consider the time (in minutes) it takes a courier service deliver parcels from its depot in East London to its
customers in Durban. A sample of 30 delivery times was taken last month. The frequency counts for delivery
times are given in the table below.

TIME FREQUENCY
5 -< 10 3
10 -< 15 5
15 -< 20 9
20 -< 25 7
25 -< 30 6

a) Find the variance time taken by the courier service company to deliver parcels to its Durban based
customers.
b) Find the standard deviation time taken by the courier service company to deliver parcels to its Durban
based customers.

Solution
a)
MIDPOINTS
TIME FREQUENCY ( fi ) (x i  x ) (x i  x )2 f (x i  x )2
(x i )
7.5 – 18.83 =
5 -<10 3 7. 5 128.3689 385.1067
– 11.33
12.5 – 18.83 =
10 -<15 5 12. 5 40.0689 200.3445
– 6.33
17.5 – 18.83 =
15 -<20 9 17. 5 1.7689 15.9201
– 1. 33
22.5 – 18.83 =
20 -<25 7 22. 5 13.4689 94. 2823
3.67
27. 5 – 18.83 =
25 -<30 6 27. 5 75.1689 45 1.0134
8.67
5
n   fi  30  f (x i
 x )2  1146.667
i 1

Therefore,
1146.667
a) variance =  39.54024138  39.54 to 2d.p
30  1
b) Standard deviation = 39.54024138  6.288103162  6.29 to 2d.p

Example: (for grouped data)

The following table shows the daily wages of a random sample of construction workers. Calculate its
variance, and standard deviation.

Daily Wages ($) Number of Workers

200 - 399 5
400 - 599 15

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STD121/121E 2023 – Business Statistics
600 - 799 25
800 - 999 30
1000 - 1199 18
1200 - 1399 7
Total 100

Solution

Number of
Daily Wages Workers Class Mark fi ( xi − x) 2
($) fi xi
200 - 399 5 299.5 1, 372,880
400 - 599 15 499.5 1,574,640
600 - 799 25 699.5 384,400
800 - 999 30 899.5 173,280
1000 - 1199 18 1,099.5 1,371,168
1200 - 1399 7 1,299.5 1,586,032
Total 100 6,462,400

2 6462400
=
a) Variance (s ) = 65, 276.77
99

b) Standard deviation = 65276.77 = 255.49

4.9 SKEWNESS
It is a measure of position around which the observations are concentrated.
It measures the symmetry of the data.
If a distribution is said to be skewed then it is not symmetrical, implying most of the observations are not
concentrated on the centre of the distribution.
If a distribution deviates from symmetry, it is skewed to the left or to the right.
Right or positive skewness occurs when the data set contains extremely high data values.
Left or negative skewness occurs when the data set contains extremely low values.

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STD121/121E 2023 – Business Statistics

Summary

Measures of Data Variation (variability, dispersion, or spread) are attempts to describe how spread out, or
how much the values vary, in a particular data set. All measures of data variation or dispersion require
quantitative data to calculate and are nonnegative. The measures of data variation are zero (if all the values
are equal) or positive. A “large” measure of spread indicates a more dispersed data set while a “small”
measure indicates a more tightly grouped data set.

The easiest measure of spread to calculate is the range. The range is the difference between the largest or
maximum value and the smallest or minimum value. The notation and formula for the range is: R = H − L
, where H is the largest of maximum value and L is the smallest or minimum value. The range, while simple
to calculate, is only informative if it is “small.” “Small” and “large” are relative terms and must be determined
relative to the magnitude of the values measured. If the range is “small” it means that the two extreme
values are very close to each other, so the rest of the values must also be tightly grouped. If the range is
“large” we know that the extreme values are a long way from each other but we know nothing about the
distribution of the rest of the observations. Since the range only uses two values in its calculation, we are
provided with limited information.

Like our favorite measure of central tendency, the mean, we might like to come up with a measure of
variability that incorporates all the values in the data set as opposed to using only the two values needed to
calculate the range. We might be interested in finding out, on the average, how much the values vary
around a “typical value.” In an effort to describe the variability of a data set we could measure the distance
each value is from the mean, our standard measure of “typical.” The distance a value is from the mean is
called the “deviation from the mean” and is found by subtracting the mean from a particular value. This
deviation from the mean can be negative, (if the value is smaller than the mean) positive, (if the value is
bigger than the mean) or zero (if the value is equal to the mean). To calculate the average deviation from
the mean, we could sum the deviations from the mean for each value in the data set and divide by the
number of observations in our sample. Unfortunately, although a good idea intuitively, this value will always
be zero since the mean is the gravitational center of the data set and as a result, the sum of the deviations

from the mean sum to zero and so the average deviation would be zero (0):
∑ ( x −x ) = 0 . This occurs
n
because the deviations from the mean that are negative offset the deviations from the mean that are
positive. We can avoid this problem by using the absolute value or square of the deviations from the mean.

The Mean Absolute Deviation (MAD), is the sum of the absolute deviations from the mean divided by the

sample size: MAD =

∑ | x − x | . The MAD is used in financial analysis to determine the variability in stock
n
prices from the expected price. Unfortunately, while the MAD is the “best” measure of spread for descriptive

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STD121/121E 2023 – Business Statistics
purposes, it is not useful for inferential statistics since the distribution of an absolute value function is not
smooth.
The sample variance, denoted s2, is the sum of the squared deviations from the mean divided by the sample
size less one (n-1). Continuing our effort to find an average deviation from the mean, we square the
deviations from the mean to eliminate any negative values so our numerator is not equal to zero, and then
divide by the sample size less one. Our denominator is made smaller (hence our variance is made larger) as
an adjustment to our estimate for the true population variance, denoted σ2 (sigma squared) since we
calculate the sample variance, s2, using the sample mean, x , instead of the true population mean, µ (mu).
The true measure of variability for the population should be calculated according to each value’s distance
from µ, the population mean. The adjustment in the denominator makes our estimate larger than without
the adjustment to account for the estimate ( x ) used in the numerator. Since we would prefer to have a
“small” measure of variability because this indicates that the mean, x , is a good measure of “typical” since
most of the values are “close to” the mean, adjusting our estimate for the variance to be larger is considered
to be conservative. We are unsure of the true value of the mean so we use the value of the sample mean
to estimate the variability in the data. The deviations from the mean are estimated using deviations from
the sample mean. It is said that we lose one degree of freedom (df) in the denominator for every estimate
in the numerator. All variances are of the form: sum of squares divided by degrees of freedom.
The problem with the variance is that the value is in squared units. For instance, if we are measuring the
dollar amount spent on lunch, the variance will be in dollars squared. Since squared units make
interpretation difficult, we normally take the square root of the variance to return to the original units of
measurement. The positive square root of the sample variance, s2, is the sample standard deviation, s. The
sample standard deviation, s, is our estimate for the true population standard deviation, denoted σ (sigma),
which is the positive square root of the population variance, σ2. The definitional formula for the sample
variance, s2, is given below followed by an algebraic manipulation which we call the computation formula.
The computational formula is easier and faster to calculate but intuitively the definitional formula makes
more sense as our estimate of the “average” (squared) deviation from the mean.

(∑ x ) 2
∑ (x − x)
2
∑x 2
−
n
s2 = = = the sample variance
n −1 n −1

s = s 2 = the sample standard deviation

Although we rarely calculate parameters, the following formulae are given for the population variance and
the population standard deviation.
(∑ x ) 2
∑ (x − µ ) = ∑ x
2
2 −
σ2 = N = the population variance
N N

σ = σ2 = the population standard deviation.

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 STD121/121E 2023 – Business Statistics

Exercise

1. The human resource department of a company recorded the number of days absent of 23 employees in
the technical department over the past 9 months.
5 4 8 17 10
9 30 5 6 15
2 16 15 18 4
12 6 6 15
10 10 9 5

a) Compute the first quartile and the third quartile of the number of days absent over this 9-month period.
b) Interpret these quartile values for the human resources manager.
c) Draw a box plot.
d) Compute the variance and standard deviation of the number of days absent over this 9-month period.

2. A fish shop owner recorded the daily turnover of his outlet for 300 trading days as shown in the frequency
table.

DAILY TURNOVER No. OF DAYS

500-<750 15
750-<1 000 23
1000-<1 250 55
1250-<1 500 92
1500-<1 750 65
1 750-<2 000 50

a) Identify the maximum daily turnover associated with the slowest 25% of the trading days.
b) What daily turnover separates the busiest 25% of trading days from the rest?

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 STD121/121E 2023 – Business Statistics
CHAPTER FIVE

PROBABILITY

5.0 INTRODUCTION
Uncertainty surrounds every aspect of business. Many business decisions are made under conditions of
uncertainty. Probability theory provides the foundation for quantifying and measuring uncertainty. It is therefore
necessary to review basic concepts and laws of probability to fully understand how to manage uncertainty.
Definition: Probability is the chance, or likelihood, of a particular outcome out of a number of possible
outcomes occurring for a given event.

5.1 TYPES OF PROBABILI11ES

Probabilities are broadly of two types:
• Subjective.
• Objective.

Subjective Probability: is the probability of an event being based on an educated or clever guess or expert
opinion or just plain intuition.
We cannot verify such kind of probability.
It is not widely used as it is not statistical verified.

Objective Probability: is when the probability of an event can be verified, usually through
repeated experiments or empirical observations.
So it is extensively used in statistical analysis then come up with stabilised probability.
Mathematically, a probability is defined as the ratio of two numbers, i.e.

r
P (A) 
n
Where A  event of a specific type (or with specific properties)
r  number of outcomes of event A
n  total number of all possible outcomes (called the sample space)
P(A)  probability of event A occurring
Example:
A card is drawn at random from an ordinary pack of 52 playing cards. Find the probability that the card:
a) Is a seven
b) Is not a seven.

Solution
n  52 playing cards. r 4 A picking a seven
4 1 1 12
a) P(a seven) =  b) P(not a seven)  1  
52 13 13 13
5.2 PROPERTIES OF A PROBABILITY

a) A probability value lies only between 0 and 1, i.e. 0  P (A)  1

b) If an event A cannot occur (i.e. an impossible event), then P (A)  0
c) If an event A is certain to occur, then P (A)  1
d) Probabilities for a collectively exhaustive set of n events sum to one:

P (A1 )  P (A2 )  P (A3 )  ...  P (An )  1

e) Complementary probability: If P (A) is the probability of event A occurring then the probability of A not
occurring is defined as: P (A)  1  P (A)

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 STD121/121E 2023 – Business Statistics
5.3 MUTUALLY EXCLUSIVE EVENTS
These are events which cannot occur together on a single trial of a random experiment. In such cases the
separate probabilities are added to give the combined probability.

Addition Law: If events A, B, C are mutually exclusive, then the probability of A or B or C happening is
the sum of their individual probabilities.

P (A)  P (B )  P (C )  P (A  B  C )

N.B The addition law is used to solve problems which contain the words or/either.
For mutually exclusive events, there is no intersectional event.

Thus, P (A  B )  0

Venn diagram of mutually exclusive events

A B

Sample space  n

Example:

In a race the probability that John wins is 0,3, the probability that Paul wins is 0,2 and the probability that Mark
wins is 0,4. Find the probability that:
a) John or Mark wins.
b) Neither John nor Paul wins.

Solution
a) P (John or Mark wins) = P (John Wins) + P (Mark wins)
 0.3 + 0.4
 0.7
b) P (neither John nor Paul wins) = 1  P (John or Paul wins)
 1  (0.3 + 0.2)
 0.5

5.4 NON- MUTUALLY EXCLUSIVE EVENTS

If two events are not mutually exclusive, then the probability of either event A or event B or both occurring in a
single trial of a random experiment is defined as:

P (A  B )  P (A)  P (B )  P (A  B )

In Venn diagram terms, the union of two non-mutually exclusive events is the combined outcomes of the two
overlapping events A , B .

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 STD121/121E 2023 – Business Statistics

AB

A AB
B

Example:

2 3
For events A and B it is known that P (A)  , P (A  B )  and P (A  B )
3 4
Find P (B ) .
Solution
P (A  B )  P (A)  P (B )  P (A  B )
P (B )  P (A  B )  P (A  B )  P (A)
3 5 2
  
4 12 3

958 6 1
  
12 12 2

5.5 STATISTICALLY INDEPENDENT EVENTS

It is where the occurrence of one does not affect the occurrence of the other.
In such cases, the separate probabilities are multiplied to give the combined probability.

Product Law
If events A, B, C are independent the probability of A and B and C happening is the product of their individual
probabilities.

P (A)  P (B )  P (C )  P (A  B  C )

N.B The product law is used to solve problems which contain the words and or both.

Example:

A die is thrown twice. Find the probability of obtaining a 4 on the first throw and an odd number on the second
throw.

Solution:
1
P (obtaining a 4 ) 
6

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 STD121/121E 2023 – Business Statistics
3 1
P (odd number)  
6 2
1 1
P (obtaining a 4 and odd number)  
6 2

5.6 EXHAUSTIVE EVENTS

These are events where the union of all possible outcomes is equal to the sample space meaning in a single
outcome of an experiment one of the outcomes is certain to occur.
Thus, two events A and B are such that P (A  B )  S
Also P (A  B )  1
Example:
Let S  (1, 2, 3, 4, 5, 6, 7, 8, 9, 10)
If A  (1, 2,3,4,5,6) and B  (5,6,7,8,9, 10)
Then, A  B  S and A and B are exhaustive events.
Let S be the possibility space when an ordinary die is thrown so
S  (1, 2, 3, 4, 5, 6)
If A  (2, 4, 6) and B  (1, 3, 5) then A  B  S and A and B are exhaustive events.

5.7 CONDITIONAL PROBABILITY

If A and B are two events, where P (A)  0 and P (B )  0 , then the probability of A , given that
B has already occurred is written P (A | B )

P (A  B )
P (A | B ) 
P (B )

Example:

Given that a heart is picked at random from a pack of 52 playing cards, find the probability that it is a picture
card.

Solution
P(picture card) 3 52 3
P (picture card|heart)   
P (heart) 13 52 13

5.8 TREE DIAGRAMS

A useful way of tackling many probability problems is to draw a “probability tree” The method is illustrated in
the following examples:

Example:

A bag contains 8 white counters and 3 black counters. Two counters are drawn, one after the other. Find the
probability of drawing one white and one black counter, in any order, if:
a) The first counter is replaced.

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 STD121/121E 2023 – Business Statistics

Solution
a) With Replacement
The results of the first draw and the second draw are shown on the tree diagram below:

Now P (a black and a white)=P(Black and White) orP( Black and White)

8 3 3 8 24 24 48
(  )(  )   
11 11 11 11 121 121 121

b) Without Replacement

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 STD121/121E 2023 – Business Statistics

Now P (a black and a white) =P(Black and White) or P( Black and White)

8 3 3 8
(  )(  )
11 10 11 10
24 24
 
110 110
24

55

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 STD121/121E 2023 – Business Statistics
EXERCISE 5
1) An ordinary die is thrown. Find the probability that the number obtained is
a) Even
b) Prime
c) Even or prime

2) From an ordinary pack of 52 playing cards the seven of diamonds has been lost. A card is drawn from the
well-shuffled pack. Find the probability that it is
a) A diamond
b) A queen
c) A diamond or a queen
d) A diamond or a seven

3) For events A and B it is known that

P (A)  P (B ), P (A  B )  0.1 and P (A  B )  0.7
Find P (A) .

4) A card is picked at random from a pack of 20 cards numbered 1, 2, 3... 20. Given that the card shows an
even number. Find the probability that it is a multiple of 4.

5) A bag contains 4 red counters and 6 black counters. A counter is picked at random from the bag and not
replaced. A second counter is then picked. Find the probability that
a) The second counter is red, given that the first counter is red.
b) Both counters are red.
c) The counters are of different colours.
1
6) Two men fire at a target. The probability that Alan hits the target is and the
2
1
probability that Bob does not hit the target is . Alan fires the target first, and then
3
Bob fires at the target. Find the probability that,
a) Both Alan and Bob hit the target.
b) Only one hits the target.
c) Neither hits the target.
2
7) A coin is biased so that the probability that it lands showing heads is . The coin is
3
tossed three times. Find the probability that,
a) No heads are obtained.
b) More heads than tails are obtained.

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 STD121/121E 2023 – Business Statistics
CHAPTER SIX

DISCRETE PROBABILITY DISTRIBUTIONS

6.1.0 DISCRETE RANDOM VARIABLE

Definition: It is a variable that takes on distinct integer values.
A probability distribution will then assume a probability value with each integer valued outcome.
If X is a random variable and x i , denotes an integer valued outcome that X may assume, then the
probability that X will take the value is denoted by P (X  x )

6.1.1 PROPERTIES
Let X have the following properties:
a) It is a discrete variable and can take only values x 1, x 2 , x 3 ,…., x n
b) The probabilities associated with these are p1 , p2 , p3 ,..., pn

Where

P (X  x 1 )  p1
P (X  x 2 )  p2
P (X  x 3 )  p3

P (X  x n )  pn

Then X is a discrete random variable if p1  p2  p3  ...  pn  1

This can be written as p i
 1 for i  1,2, 3,..., n

OR  P(X  x )  1
allx

c) 0  P (X  x i )  1
We usually denote a random variable (rv ) by a capital letter ( X ,Y , R , etc.) and the particular value it
takes by a small letter ( x , y , r , etc.).

Example:
In a large batch of components, some of them are defective. Draw a sample of six components meaning they
could be 0, 1, 2, 3, 4, 5, 6.
After drawing several samples you can come up with a probability distribution (probability associated with
each possible outcome) as follows:

Number of defectives 0 1 2 3 4 5 6

Probability 0.75 0.15 0.07 0.02 0.01 0 0

Then you can conclude that for example, P (3 is defective) is 0.02.

Note that: A probability distribution function can be also called a probability mass function or a probability
function or a probability density function.

6.1.2 CUMULATIVE PROBABILITY DISTRIBUTION

Cumulative probability distribution measures the probability that a random variable X , takes values less than
the specified value. Thus, P (X  x i )

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 STD121/121E 2023 – Business Statistics
Example

Number of defectives 0 1 2 3 4 5 6
Probability 0.75 0.15 0.07 0.02 0.01 0 0

Cumulative Probability 0.75 0.90 0.97 0.99 1 1 1

6.1.3 MEAN OR EXPECTED VALUE OF A DISCRETE RANDOM VARIABLE

The mean or expectation of X or expected value, written as E (X ) , is given by

E (X )   xP (X  x )
allx

This can be written as E (X )   x i pi where i  1, 2, 3,…, n

We often use the symbol  , pronounced “mew”, for the expectation, so  = E (X ) .

Example:
Considering the values on the above probability distribution.
E [X ]  0  0.75  1  0.15  2  0.07  3  0.02  4  0.01  5  0  6  0
 0  0.15  0.14  0.06  0.04
 0.39

6.1.4 VARIANCE AND STANDARD DEVIATION OF A DISCRETE RANDOM VARIABLE

Variance and standard deviation measures the variability of the outcomes of the discrete
random experiment.
Formula for variance is given by

 E [X 2 ]  E [X ]
2
Variance
2
 n 
  i 1 x i2P (X  x i )    i 1 x i P (X  x i )
n

 

We often use the symbol 2 pronounced “sigma squared”, for the variance, so
2
  Variance  Var(X ).

Example:
Considering the values on the above probability distribution.
E [X ]  0  0.75  1  0.15  2  0.07  3  0.02  4  0.01  5  0  6  0
 0  0.15  0.14  0.06  0.04
 0.39
 E [X ]  0.392  0.1521
2

E [X 2 ]  02  0.75  12  0.15  22  0.07  32  0.02  42  0.01  52  0  62  0

 0  0.15  0.28  0.18  0.16
 0.77

Var[X ]  E [X 2 ]  E [X ]  0.77  0.1521  0.6179

2
Therefore,

Standard deviation  Variance

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 STD121/121E 2023 – Business Statistics

 E [X 2 ]  E [X ]
2

 0.6179
 0.786066155
 0.79

6.2.0 BINOMIAL DISTRIBUTION

A discrete random variable can be described by the binomial distribution if it satisfies the following four
conditions.
a) There are only two, mutually exclusive and collectively exhaustive, outcomes of the random variable.
Generally, these outcomes are referred to as success and failure.
b) Each outcome has an associated probability:
- The probability for the success outcome is denoted by p.
- The probability for the failure outcome is denoted by q.

N.B p q  1

Hence: q  1  p

c) The random variable is observed n times.

Each observation of the random variable in its problem setting is called a trial. Each trial generates either a
success or a failure outcome.
d) The trials are assumed to be independent of each other.

Examples of situations where we can use the Binomial Distribution

a) When checking defective products in a production line.

Let success – defective
Failure – non-defective

b) Testing the effect of a drug on a sample of animals.

Let success – drug has produced an effect
Failure – drug has not produced an effect
In general, if a random variable X follows a binomial distribution then

P (X  x )  nC x p xq n x

Where x  0,1,2, , n
n  the sample size.
P  probability of success.
q  probability of failure.
If X is distributed in this way, we write X ~ Bin(n, p) .
n and p are called the parameters of the distribution.

Example:
A machine produces metal rods, it is known that the length of the rod will be outside a specified range with
a probability of 0,1. Such a rod is considered defective. Find
a) The probability that exactly 3 rods are defective.

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STD121/121E 2023 – Business Statistics
b) The probability that 2 or more are defective.
When a sample of 12 rods is defective.

Solution
X ~ Bin(12, 0.1)
a) P (X  3)  12C 3 (0.1)3 (0.9)9  0.085232507  0.0852 to 3 s.f (Significant figures)
b) P (2 or more )  P (X  2)
 P (X  2)  P (X  3)  ...  P (X  12)
 1  [P (X  0)  P (X  1)]
 1  [ 12C 0 (0.1)0 (0.9)12  12C 1(0.1)1(0.9)11 ]
 1  (0.282429536  0.376572715)
 1  0.659002251
 0.340997749
 0.341

6.2.1 MEAN OF THE BINOMIAL DISTRIBUTION

The expectation or mean of a binomial distribution is given by:

  E (X )  np

6.2.2 VARIANCE OF THE BINOMIAL DISTRIBUTION

The variance of a binomial distribution is given by:

Var (X )  npq

Example:
Using the above example, where X  Bin(12, 0.1)
a)   E (X )  np  12  0.1  1.2
b) Var (X )  npq  12  0.1  0.9  1.08

Practice Question 1

Of a large number of mass-produced articles, one-tenth is defective. Find the probabilities that a random
sample of 20 will obtain

(a) exactly two defective articles;

(b) at least two defective articles.

Let X be the number of defective articles in a random sample of 20. X ∼ b(20,1/10)

a)
2 18
 20  1  9
P( X = 2) =      = 0.28517
 2  10   10 

b)
P( X ≥ 2) = 1 − P( X = 0) − P( X = 1)
0 20 19
 20  1   9   20  1  9 
= 1 −      −     = 1 − .12158 − 0.27017 = 0.60825
 0  10   10   1  10  10 

Practice Question 2

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 STD121/121E 2023 – Business Statistics
A test consists of 6 questions, and to pass the test a student has to answer at least 4 questions correctly.
Each question has three possible answers, of which only one is correct. If a student guesses on each
question, what is the probability that the student will pass the test?

Let X be the no. of correctly answered questions among 6 questions. X ∼ b(6,1/3)

6
( ) (2 3 )
6 6 x 6− x
P( X ≥ 4) = ∑ P( X = x) = ∑   1
x=4 x=4  x 
3

6
( ) (2 3 ) +  65 (13 ) (2 3 ) +  66 (13 ) (2 3 )
=   1
4 2 5 1 6 0
= 0.10014
 4 3    
Practice Question 3

A packaging machine produces 20 percent defective packages. A random sample of ten packages is
selected, what are the mean and standard deviation of the binomial distribution of that process?

Let X be the no. of defective packages in a sample of 10 packages. X ∼ b(10, 0.2)

Its mean is µ = np = (10)(0.2) = 2

Its standard deviation is

σ = npq = (10)(0.2)(0.8) = 1.265

6.3 POISSON DISTRIBUTION

6.3.1 CONDITIONS NECESSARY FOR USING THE POISSON DISTRIBUTION
a) The arithmetic mean of the distribution has to be known.
b) p has to be relatively small. Thus, probability of success should be very small.
c) n is large.
d) The mean must be constant.
e) The occurrence of the event must be purely random.

Examples Of Situations Where The Poisson Distribution Can Be Applied

a) The flow of traffic in a highway.
b) Occurrence of car accidents at a given interval of time, for instance during festival seasons.
c) The failure of a machine within a specified period.

6.3.2 POISSON DISTRIBUTION

A discrete random variable X is said to follow a poisson distribution if

xe 
P (X  x ) 
x!

Where x  0
  mean
If X is distributed in this way, we write X  Po()

6.3.3 MEAN AND VARIANCE OF POISSON DISTRIBUTION

For a Poisson distribution

E (X )  Var (X )  

Example:
The number of failures per week of a certain machine has been found to follow a Poisson distribution with
mean = 0,5. What is the probability that a given machine has 3 or more failures in a given week?

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 STD121/121E 2023 – Business Statistics

Solution:
P (X  3)  P (X  3)  P (X  4)  P (X  5)  ...
 1  [P (X  0)  P (X  1)  P (X  2)]
 0.50 (e 0.5 ) 0.51(e 0.5 ) 0.52 (e 0.5 ) 
    

 0 ! 1 ! 2 ! 
 1  (0.606530659  0.303265329  0.075816332)
 1  0.98561232
 0.01438768
 0.0144

Practice Question 1

The average number of radioactive particles passing through a counter during 1 millisecond in a laboratory
experiment is 4. What is the probability that 6 particles enter the counter in a given millisecond?

Let X be the no. of particles entering the counter in a given millisecond. X ∼ Po(4)

e −4 4 6
P( X = 6) = = 0.1042
6!

Practice Question 2

Ships arrive in a harbour at a mean rate of two per hour. Suppose that this situation can be described by a
Poisson distribution. Find the probabilities for a 30-minute period that

(a) No ships arrive;

(b) Three ships arrive.
Let X be the no. of ship arriving in a harbour for a 30-minute period. X ∼ Po(2/2=1)

(a)

e −110
P ( X = 0) = = 0.3679
0!

(b)

e −113
P( X = 3) = = 0.0613
3!

EXERCISE
1) The discrete random variable X has p.d .f as shown below

X 1 2 3 4 5
P (X  x ) 0,2 0,25 0,4 a 0.05
Find
a) The value of a .
b) P (1  x  3)
c) P (X  2)
d) P (2  x  5)

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 STD121/121E 2023 – Business Statistics
e) The mode
f) Draw a vertical line graph to illustrate the distribution.
g) Construct the cumulative distribution table.
h) Find E (X ) .
I) FindVar (x ) .
j) Hence, find the standard deviation.

2) The probability that a pen drawn at random from a box of pens is defective is 0,1. If a sample of 6 pens is
taken, find the probability that it will contain
a) No defective pens.
b) 5 or 6 defective pens.
c) Less than 3 defective pens.
d) Mean.
e) Variance.
f) Standard deviation.

1 7
3. If the random variable X is such that X  Bin(10, p) where p  and Var (X )  1
2 8
Find
a) p
b) E (X )
c) P (X  2)

4. The random variable X follows a Poisson distribution with standard deviation 2. Find P ( 3)

CHAPTER SEVEN

NORMAL DSTRIBUTON

7.1 INTRODUCTION
The normal distribution is the most important continuous distribution in statistics. Many measured quantities
in the natural sciences follow a normal distribution, for example heights, masses, ages, examination results,
etc.

7.2 PROBABILITY DENSITY FUNCTION OF NORMAL VARIABLE

The normal variable has a very complicated p.d .f . A random variable X is said to be normally distributed if

2
1  x  
 
1 2   


f (x )  e
 2

2
The shape of the curve depends on two parameters  and  .
2
Where   mean and   variance
2
If X is distributed in this way we write X  N (,  )

7.3 MAIN FEATURES OF THE NORMAL DISTRIBUTION

a) It is bell shaped.
b) It is symmetrical about its mean.
c) It is asymptotic meaning the curve gets closer and closer to the x axis but never touches it.
d) About 68% of the distribution lies within +1 and -1 standard deviation of the mean.
e) About 95% of the distribution lies within +2 and -2 standard deviation of the mean.
f) About 99,8% of the distribution lies within +3 and -3 standard deviation of the mean.

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 STD121/121E 2023 – Business Statistics

7.4 PROBABILITIES
The probability that X lies between a and b is written

P (a  X  b)

and is given by the area under the normal curve between a and b

The function is very difficult to integrate, so tables are used. In order to use the same set of tables for all
2
possible values of  and  , we perform a process known as standardising X to obtain the standard normal
variable which is given the special symbol Z .

7.5 STANDARD NORMAL VARIABLE, Z

The standard normal variable, Z is the normal variable with mean 0 and variance 1.
So Z  N (0,1)

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 STD121/121E 2023 – Business Statistics
We can find the areas under the standard normal curve by referring to standard normal tables which give
cumulative probabilities.
There is a special symbol for the cumulative probability, (z ) , where (z )  P (Z  z )

FINDING PROBABILITIES USING THE STANDARD NORMAL TABLES

i.

P (Z  z )  (z )  (0)  0.5

ii.

P (Z  z )  (z )

iii.

P (Z  z )  (z )

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 STD121/121E 2023 – Business Statistics
iv.

P (Z  z )  1  (z )

v.

P (Z  z )  1  (z )

vi.

P (z 1  Z  z 2 )  (z 2 )  (z 1 )

vii.

P (z 1  Z  z 2 )  (z 1 )  (z 2 )

viii.

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 STD121/121E 2023 – Business Statistics

P (z 1  Z  z 2 )  (z 1 )  (z 2 )  1

7.6 USE OF THE STANDARD NORMAL TABLES USING (z )

Example:

Use the standard normal tables to find

a) P (Z  0.85) b) P (Z  0.85)

P (Z  0.85)  1  P (Z  0.85)  1  (0.85)

P (Z  0.85)  (0.85)  0.8023
 1  0.8023  0.1977

N.B The standard normal tables start when z  0 , as a result, for negative values of z we need to use the
symmetrical properties of the curve.
Example:
To find P (Z  1) , consider the diagrams below:

z  1

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 STD121/121E 2023 – Business Statistics
P (Z  1)  1  P (Z  1)
 1  (1)
 1  0.8413
 0.1587

To find P (Z  1) consider the diagrams:

P (Z  1)  1  P (Z  1)  1  [1  P (Z  1)]  P (Z  1)  (1)  0.8413

In general, P (Z  a )  (a )

Example:

If Z  N (0,1) .Find,
a) P (0, 345  Z  1.751)


b) P 2, 696  Z  1, 865
c) P 1, 4  Z  0, 6

Solution (To draw the normal curves in class)

a)

z 1  0.345;
z 2  1.751

P (0, 345  Z  1.751)

 (1.751)  (0.345)
 0.9600  0.6350
 0.3250

b)

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 STD121/121E 2023 – Business Statistics

z 1  2.696;
z 2  1.865

P 2, 696  Z  1, 865

 (1.865)  (2.696)
 (1.865)  [1  (2.696)]
 (1.865)  (2.696)  1
 0.9690  0.99650  1
 0.9655

N.B P (a  Z  b)  (b )  (a ) and P (a  Z  b)  (a )  (b)  1

c)

z 1  0.6;
z 2  1.4

P 1, 4  Z  0, 6  (0.6)  (1.4)

 1  (0.6)  [1  (1.4)]
 (1.4)  (0.6)
 0.9192  0.7257
NB P (a  Z  b)  (a )  (b)

Example:
If Z  N (0,1) , Find
a) P ( Z  1.433)

b) P ( Z  1.433)

Solution:

a)

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 STD121/121E 2023 – Business Statistics

z 1  1.433;
z 2  1.433

P ( Z  1.433)  P 1.433  Z  1.433

 (1.433)  (1.433)
 (1.433)  [1  (1.433)]
 (1.433)  1  (1.433)
 2(1.433)  1
 2(0.9240)  1
 0.848
 
b) P Z  1.433  P 1.433  Z  1.433  2(1  (1.433))  2(1  0.9240)  0.1520

z 1  1.433;
z 2  1.433

P Z 
 a  2(1  (a )) (Unshaded Area)

7.7 USING THE STANDARD NORMAL TABLES IN A REVERSE MANNER (INVERSE NORMAL
DISTRIBUTION)
We now consider how to use the standard normal tables in reverse, that is, to find the z value when we
know the probability.
Consider the following extract.

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STD121/121E 2023 – Business Statistics

Example (i):
If Z  N (0,1) , find the value of z if P (Z  z )  0.9406

Solution:
To find z if P (Z  z )  0.9406 ,
• find 0,9406 in the main body of the table.
• We see that the Z value is 1,56.
• Therefore, P (Z < 1,56) = 0,9406,
• so z = 1,56.

Example (ii):
If Z  N (0,1) , find the value of z if P (Z  z ) = 0,9579.

Solution:
To find z if P (Z  z ) = 0,9579,
• look for 0,9579 in the main body of the table.
• It does not appear, so look for the number below it. This is 0,9573.
• To get the digits 9579 we would need to add 6 to 9573.
• We look at the right-hand section and find 6 under column 7.
• This means that the z value we require is 1,727.
• Therefore, P (Z< 1,727) = 0,9579 and so z = 1,727.
Now that you are able to find the z value when given the probability, you should present your solutions as
follows,

Example (iii):
If Z  N (0,1) find the value of z if P (Z  z ) =0,9693

Solution:

P (Z  z )  0, 9693

P (Z  z )  0, 9693
i.e. (z )  0, 9693

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STD121/121E 2023 – Business Statistics
 
From tables  1.87  0, 9693
Therefore, z =1,87

Example (iv):
If Z  N (0,1) , find the value of z if P (Z  z ) =0,3802
Solution:

P (Z  z ) = 0,3802

P (Z  z ) = 0,3802
i.e. 1  (z )  0,3802
Now 1  0, 3802  0, 6198

 
From tables  0, 305  0, 6198
Therefore, z  0,305
Example (v):
If Z  N (0,1) ,find the value of z if P (Z  z )  0, 7367
Solution:

P (Z  z )  0, 7367

This probability is greater than 0,5, therefore z must be negative.

P (Z  z )  0, 7367
So, (z )  0.7367

 
From the tables  0, 633  0, 7367
Therefore, z  0,633
 z  0, 633

Example (vi):
If Z  N (0,1) , find the value of z if P (Z  z )  0, 0793
Solution:

P (Z  z )  0, 0793

P (Z  z )  0, 0793 ,

So 1   z  0, 0793
(z )  1  0, 0793
z  0, 9207

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STD121/121E 2023 – Business Statistics
From the tables  (1,41) = 0,9207
Therefore z  1, 41
7.8 USE OF THE STANDARD NORMAL TABLES FOR ANY NORMAL DISTRIBUTION
(APPLICATIONS OF NORMAL DISTRIBUTION)
Tables for the standard normal distribution can be adapted for use with any normal variable
X where X  N (,  2 ) .
We “standardise” X by subtracting  and then dividing by the standard deviation,  .
This gives the standard normal variable Z .

X 
So Z  where Z  N (0,1) .

Example:
   
The random variable X  N 300, 25 . Find a) P X  305 b) P X  291  
Solution:
 
a) To find P X  305 , we standardise X by subtracting the mean () , 300 and dividing by the
standard deviation () 5, so that
X — 300
Z 
5
So
 305  300   5
P X  305  P Z    P Z  

 5   5 
 P (Z  1)
 1  P (Z  1)
 1  (1)
 1  0.8413
 0.1587
Therefore, P X  305  0,1587. N.B S.V means standardised variable.
b)
 X  300 
P X  291  P Z  
 5 
 291  300  
 P Z  
 5 
  9 
 P Z  
 2 
 P (Z  1.8)
 (1.8)
 1  (1.8)
 1  0.9641
 0.0359

 
Therefore, P X  291  0,0359
NOTE: It is important and very helpful to draw diagrams and to check that your solutions are sensible.

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 STD121/121E 2023 – Business Statistics
EXERCISE 7
1. If Z  N (0,1) , find from the tables


a) P Z  1.377 

b P Z   1.377 

c) P Z  1.377
d) P Z  1.377 

2. If Z  N (0,1) , find from the tables

 
a) P 0, 829  Z  1, 843

b) P 2, 56  z  0,134

c) P 1, 762  Z  0,246

d) P 0  Z  1, 73

3. lf Z  N (0,1) ,find a if
 
a) P Z  a  0,198

b) P Z  a   0, 787

c) P Z  a   0, 0296

d) P Z  a   0, 692

4. The time taken by a milkman to deliver milk to the High Street is normally distributed with mean 12
minutes and variance 4 minutes. He delivers milk every day.
a) Longer than 17 minutes.
b) Less than 10 minutes.
c) Between 9 and 13 minutes.

5. The charge account at a certain department store is approximately normally distributed with an average
balance of $80 and a standard deviation of $30. What is the probability that a charge account randomly
selected has a balance

(a) over $125;

(b) between $65 and $95.
CHAPTER EIGHT
LINEAR REGRESSION AND CORRELATION ANALYSIS
8.1 INTRODUCTION
Many numeric measures around the world are related (either closely or loosely) to one another.
EXAMPLES:
• Advertising expenditure is assumed to have an influence on sales volumes.
• Hours of operator training is likely to impact positively on productivity.

Definition of Terms
Regression Analysis defines the structural relationship between two numeric random variables.
Correlation Analysis measures the strength of this identified association between the variables.
The independent variable is the variable that influences the outcome of the other variable. It is also
called the predictor variable. It is represented by the symbol x.
The dependent variable is influenced by the independent variable. Hence, it is also called the response
variable. It is represented by the symbol y.

8.2 SCATTER PLOTS OR SCATTER DIAGRAMS

Definition: A scatter plot or a scatter diagram is a visual representation of the possible relationship that

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exists between two variables.
That is the independent variable and the dependent variable.

8.2.1 CONSTRUCTING A SCATTER PLOT

The independent variable is usually plotted on the x-axis and the dependent variable on the y-axis.
Then choose a suitable scale for both axes.

EXAMPLE:
A company doctor is investigating the possible effect of stress upon the health of the company’s
management employees. She suspects that employees under stress will suffer from high systolic blood
pressure. She takes a random sample of ten employees, aged between 35 and 55 years, and records
their age and blood pressure:
Management employee Age (x) Systolic blood pressure (y)
A 37.2 133
B 39.8 143
C 42.1 135
D 44.6 151
E 47.2 143
F 48.9 158
G 50.0 163
H 51.3 146
I 52.8 168
J 54.4 160

A scatter graph showing the data is given below:

Scatter graph showing blood pressure

against age
180
pressure (mmHg)
Systolic blood

170
160
150
140
The scatter 130 graph shows a
relationship between blood pressure
and age. 35 40 45 50 55 60 Blood pressure appears
to increase Age (years) with age (i.e. older
people tend to have higher blood
pressure than young people). We say that the two variables are positively correlated.
The data in this example are a set of pairs of values for two variables, age and blood pressure. This is an
example of bivariate data, where two variables are given for each member of the population.
Scatterplots therefore provide an easy and effective way of seeing the correlation between the variables
(bivariate data).

These patterns are described in terms of linearity, slope and strength.

• Linearity—the pattern of the data is linear (straight) or non-linear (curved).
• Slope/Gradient — direction of data/change in variables. That is, the gradient is positive if variable
y increases as variable x increases or vice versa and the gradient is negative if variable y
decreases as variable x increases or vice versa.
• Strength - If the points are plotted widely spread, the relationship between the variables is weak
whereas if the points are clustered around a line, the relationship is strong.
The diagrams below illustrate the linearity, slope and strength associated with various scatter plots of two
numeric random variables.

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8.3 LINEAR REGRESSION EQUATION

Regression analysis finds the equation of the best-fitting straight line to represent the actual data points.

Formula
A straight line graph is defined as follows:
ŷ  b0  b1x
Where x  values of the independent variable
ŷ  estimated values of the dependent variable
b0  the y intercept coefficient (thus, where the regression line cuts the y axis)
b1  the slope (gradient)

8.3.1 THE METHOD OF LEAST SQUARES (MLS)

Regression analysis uses the method of least squares to find the best — fitting straight line equation to
the plotted data points.
The method of least squares is a mathematical technique which finds values for the coefficients, b0 and b1
such that the sum of the squared deviations of the data points from the fitted line is minimised.
The values of b0 and b1 are found by the formulae below:

b1 
n  xy   x  y
b0 
y b  x 1

n  x   x 
2
2 n

Example:
UFH Technologies, an electronic retail company in East London, has kept records of the number of ipods
sold within a week of placing advertisements in the Daily Dispatch. The table below shows the number of
ipods sold and the corresponding number of advertisements paced in the Daily Dispatch for 12 randomly
selected weeks over the past year.

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Database of ipod sales and newspaper advertisements placed.

ADVERTISEMENTS SALES
4 26
4 28
3 24
2 18
5 35
2 24
4 36
3 25
5 31
5 37
3 30
4 32

Find the straight-line regression equation to estimate the number of ipods that AGK Technologies can
expect to sell within a week, based on the number of advertisements placed.

Solution:
The table below shows the intermediate calculations required for use in the formulae.

ADVERTISEMENTS ( x ) SALES ( y ) x2 xy
4 26 16 104
4 28 16 112
3 24 9 72
2 18 4 36
5 35 25 175
2 24 4 48
4 36 16 144
3 25 9 75
5 31 25 155
5 37 25 185
3 30 9 90
4 32 16 128
 x  44  y  346  x 2
 174 xy  1324

Since, b1 
n  xy   x  y
and b0 
y b  x1

n  x   x 
2
2 n

Thus,  x  44 ,  y  346 ,  x 2
 174 ,  x 2  174 , xy  1324 , n  12

12(1324)  44(346) 664

b1    4.368421053  4.37 and
12(174)  (44)2 152
346  4.368421053(44)
b0   12.81578947  12.82
12
Therefore, the estimated linear regression equation is defined as:
yˆ  b0  b1x  12.82  4.37x
8.3.2 ESTIMATE y -VALUES USING THE REGRESSION EQUATION
The regression equation can now be used to estimate values of y from (known) values of x .
Estimates of y are found by substituting the given x value into the regression equation.

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Example:
Estimate the likely mean sales of ipods when three advertisements are placed.

Solution:
yˆ  12, 82  4, 37x  12, 82  4, 37 3  25, 92  25, 93

8.4 CORRELATION ANALYSIS

Correlation analysis measures the strength of the linear association between x and y variables.

8.5 PEARSON’S CORRELATION COEFFICIENT

Computes the correlation between two ratio- scaled (numeric) random variables.
If the correlation coefficient is computed using the full population data of x and y , it is represented by the
symbol  (rho).
If sample data is used to calculate the correlation coefficient, then the sample correlation coefficient is
represented by the symbol r .
In practice, only a sample correlation coefficient is usually computed, hence the term r is commonly used.

8.5.1 INTERPRETATION OF CORRELATION COEFFICIENT

A correlation coefficient is a proportion that takes on values between -1 and +1 only. Thus,

1  r  1

The table below shows how the strength of the association between two numeric random variables as
represented by the correlation coefficient.

Any interpretation should take into account that a low correlation does not necessarily imply that the variables
are unrelated, but simply that the relationship is poorly described by a straight line.
A non-linear relationship may well exist.
However, Pearson’s correlation coefficient does not measure non-linear relationships.

8.5.2 COMPUTATION OF PEARSON’S CORRELATION COEFFICIENT

Pearson’s correlation coefficient is calculated as follows:

n  xy   x  y
r
 2  2
n  x   x    n  y   y  
2 2

   

Where r  the sample Pearson’s correlation coefficient.

x  the values of the independent variable.
y  the values of the dependent variable.
n  the number of paired data points in the sample.
Pearson’s correlation coefficient formula is derived from the least squares regression approach, hence its
formula has similar terms to the regression coefficients.

Example:
UFH Technologies, an electronic retail company in East London, has kept records of the number of ipods
sold within a week of placing advertisements in the Daily Dispatch. The table below shows the number of
ipods sold and the corresponding number of advertisements placed in the Daily Dispatch for 12 randomly

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selected weeks over the past year.
Database of ipod sales and newspaper advertisements placed.

ADVERTISEMENTS SALES
4 26
4 28
3 24
2 18
5 35
2 24
4 36
3 25
5 31
5 37
3 30
4 32

QUESTION: Compute the sample correlation coefficient, to measure the strength of the linear relationship
between the number of newspaper advertisements placed and the number of ipods sold in the week after the
advertisements appeared. Comment on the relationship.

Solution:
The table below shows the intermediate calculations required for use in the formulae.

ADVERTISEMENTS ( x ) SALES ( y ) x2 xy y2
4 26 16 104 676
4 28 16 112 784
3 24 9 72 576
2 18 4 36 324
5 35 25 175 1225
2 24 4 48 576
4 36 16 144 1296
3 25 9 75 625
5 31 25 155 961
5 37 25 185 1369
3 30 9 90 900
4 32 16 128 1024
 x  44  y  346  x 2
 174  xy  1324  y 2
 10336

Thus,  x  44 ,  y  346 ,  x  174 ,  xy  1324 ,  y

2 2
 10336 , n  12
n  xy   x  y
Since r 
   
n  x   x    n  y   y  
2 2
2 2

   
Then,

12(1324)  44(346)
r
12(174)  (44)   12(10336)  (346) 
2 2

664
  0.81979557  0.82
152(4316)

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INTERPRETATION: The sample correlation coefficient is 0,82, relatively close to +1, hence, the statistical
association between number of newspaper advertisements placed and sale of ipods is strong and positive.

8.6 COEFFICIENT OF DETERMINATION

When the sample correlation coefficient, r is squared (r ) the resultant statistical measure is called the
2

coefficient of determination.
2
The coefficient of determination (r ) is defined as the proportion (or percentage) of variation in the
dependent variable, y that is explained by the independent variable x .
2
The coefficient of determination (r ) ranges between 0 and 1 (or 0% and 100%)

i.e. 0  r2  1

8.6.1 INTERPRETATION OF THE COEFFICIENT OF DETERMINATION

The proportion (or percentage) of variation in y that x can explain is a measure of how strongly x and y are
associated.
If x can explain a high proportion (or percentage) of the variation in y , then x and y are strongly associated
and vice versa.

When r  0 there is no variation in y that can be explained by the x variable.

2

Thus, there is no association between x and y .

When r  1 the values of y are completely explained by the x values.
2

Thus, there is perfect association between x and y .

When 0 r 1
2
• Values of r that lie closer to zero (or 0%) indicate a low percentage of variation in y
explained by the x variable. This represents a weak association between x and y .
Values of r that lie closer to 1 (or 100%) show that the x variable is of real value in estimating the
2
•
actual values of the y variable. This represents a strong association between x and y .

Example:
Using the previous example on Ipods Sales, r =0,81979557
Therefore, r2= (0,81979557)2= 0,672064777 = 67,20647773% = 67,21%
This is a moderately strong association of the number of newspaper advertisements placed on the ipods
sales.

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TUTORIAL WORKSHEET ONE

INTRODUCTION AND DEFINITION OF TERMS, GRAPHICAL REPRESENTATION OF DATA AND
MEASURES OF CENTRAL TENDENCY & MEASURES OF DISPERSION

Question 1
Health care issues are receiving much attention in both academic and political arenas. A sociologist recently
conducted a survey of citizens over 60 years of age whose net worth is too high to qualify for Medical aid
and have no private health insurance. The ages of 25 uninsured senior citizens were as follows:
60 61 62 63 64 65 66 68 68 69 70 73 73 74 75 76 76 81 81 82 86 87 89 90 92

i. Calculate the arithmetic mean age of the uninsured senior citizens to the nearest hundredth of a year.
ii. Identify the median age of the uninsured senior citizens.
iii. Identify the first quartile of the ages of the uninsured senior citizens.
iv. Identify the third quartile of the ages of the uninsured senior citizens.
v. Identify the interquartile range of the ages of the uninsured senior citizens.
vi. Identify which of the following is the correct statement.

Question 2
In an effort to provide more consistent customer service, the manager of a local fast-food restaurant
would like to know the dispersion of customer service times about their average value for the facility’s
drive-up window. The data below represents the customer service times (in minutes) for a sample of
47 customers collected over the past week.

Count 47.000
Mean 0.914
Median 0.822
Standard deviation 0.511
Minimum 0.095
Maximum 2.372
Variance 0.261
First quartile 0.563
Third quartile 1.180

a. Interpret the variance and standard deviation of these sample data.

b. Explain what would cause the mean to be higher than the median in this case.
Question 3

a) Explain the difference between Measures of Central Tendency and Measures of Dispersion,
giving examples of the different measures (6)
b) Table 1 below gives the grouped frequency distribution of the daily turnover of a retailer for a
period of 100 days.

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Table 1: Frequency Distribution: Time taken to complete assembly task.

Daily Turnover (R) No of Days Midpoint
0>5 1 2.5
5 > 10 1 7.5
10 > 15 3 12.5
15 > 20 5 17.5
20 > 25 5 22.5
25 > 30 7 27.5
30 > 35 30 32.5
30 > 40 37 37.5
40 > 45 10 42.5
45 > 50 1 47.5
Using the grouped data:
i. Calculate the mean daily turnover of the retailer. (2)
ii. Find the median daily turnover of the retailer. (4)
iii. What is the modal daily turnover of the retailer? (4)
iv. Calculate the standard deviation. (5)
v. Calculate the co-efficient of variation. (4)
Question 4

Table 1.a below gives the Marks obtained by 200 1st year Statistics students at Fort Hare University in the
2013 year end examinations.
Table 1a
Classes Number of Students
0 > 10 10
10 > 20 20
20 > 30 25
30 > 40 15
40 > 50 20
50 > 60 35
60 > 70 45
70 > 80 10
80 > 90 15
90 > 100 5

Using the grouped data:

i. Calculate the mean number of marks. (2)
ii. Calculate the median number of marks. (4)
iii. Calculate the modal number of marks. (4)
iv. Calculate the standard deviation. (5)
v. Calculate the co-efficient of variation. (4)
Question 5

Table 1.1 shows the frequency distribution for the number of minutes per week spent watching TV by 400
junior high students.
Table 1.1
Viewing Tine (Minutes) Number of Students
300 < 400 14
400 < 500 46
500 < 600 58
600 < 700 76
700 < 800 68
800 < 900 62
900 < 1000 48
1000 < 1100 22
1100 < 1200 6

Using the grouped data

i. Calculate the mean viewing time. (3)
ii. Calculate the modal viewing time. (4)

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iii. Calculate the median viewing time. (4)
iv. Calculate the co-efficient of variation. (7)
v. Comment on the skewness of the distribution. (3)
Question 6

The monthly expenditure (in Rands) on fuel by 50 randomly sampled motorists in Durban are shown in
Table 1a below:
Table 1a: Fuel Consumption – Durban Motorists
Classes No of Motorists Midpoint
2000 < 2200 2 2100
2200 < 2400 4 2300
2400 < 2600 14 2500
2600 < 2800 11 2700
2800 < 3000 12 2900
3000 < 3200 7 3100

Using the grouped data, calculate:

i. The mean monthly amount spent on fuel. (3)
ii. The median monthly amount spent on fuel. (5)
iii. The modal monthly amount spent on fuel. (5)
iv. The standard deviation. (7)

TUTORIAL WORKSHEET TWO

PROBABILITY

1. An ordinary die is thrown. Find the probability that the number obtained
a) Is a multiple of 3.
b) Is less than 7.
c) ls a factor of 6.

2. A card is drawn at random from an ordinary pack containing 52 playing cards. Find the probability that the
card drawn
a) Is the four of spades.
b) Is the four of spades or any diamond,
c) Is not a picture card of any suit.

3. From a set of cards numbered 1 to 20 a card is drawn at random. Find the probability that the number
a) Is divisible by 4.
b) Is greater than 15.
c) Is divisible by 4 and greater than 15.

4. A counter is drawn from a box containing 10 red, 15 black, 5 green and 10 yellow counters. Find the
probability that the counter is
a) Black.
b) Not green or yellow.
c) Not yellow.
d) Red or black or green.
e) Not blue.

5. An ordinary die and a fair coin are thrown together. Show the possible outcomes on a possibility space
diagram and find the probability that
a) A head and a 2 are obtained.
b) A tail and a 7 are obtained.
c) A head and an even number are obtained.

6. In a group of 3.0 students all study at least one of the subjects physics and biology. 20 attend the physics
class and 21 attend the biology class. Find the probability that a student chosen at random studies both
physics and biology.

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7. In a street containing 20 houses, 3 households do not own a television set, 12 households have a black
and white set and 7 households have a colour and a black and white set. Find the probability that a
household chosen at random owns a colour television set.

8. A card is picked from a pack containing 52 playing cards. It is then replaced and a second card is picked.
Find the probability that
a) Both cards are the seven of diamonds.
b) The first card is a heart and the second card is a spade.
c) One card is from a black suit and the other is from a red suit.

9. In a group of 120 girls, each is either freckled or blonde or both, 80 are freckled and
60 are blonde. A girl is to be chosen at random from the group. A is the event, a freckled girl is chosen and B
is the event a blonde girl is chosen. Calculate
a) P(AnB).

10. In a class of 24 girls, 7 have black hair. If 2 girls are chosen at random from the class without
replacement. Find the probability that
a) They both have black hair.
b) Neither has black hair.

11. A bag contains 7 black and 3 white marbles. Three marbles are chosen at random and in succession,
each marble being replaced after it has been taken out of the bag. Draw a tree diagram to show all possible
selections.
From your diagram or otherwise, calculate to 2 decimal places the probability of choosing
a) Three black marbles.
b) A white marble, a black marble and a white marble in that order.
c) Two white marbles and a black marble in any order.
d) At least one black marble.

12. There are five green balls and ten yellow balls in a bag. Calculate the probability that two balls drawn at
random from the bag (one after the other) are of different colours if:
12.1 the first ball is replaced before the second is drawn.
12.2 the first ball is not replaced before the second is drawn.

13. Two cards are selected at random from a deck of 52 cards. The first card is not replaced before the
second card is taken.
13.1 What is the probability of choosing:
14.1.1 two aces;
14.1.2 no aces;
14.1.3 exactly one ace;
. 14.1.4 at least one ace?
13.2 Which of the events 14.1.1, 14.1.2, 14.1.3 and 14.1.4 described above, are mutually
exclusive?

TUTORIAL WORKSHEET THREE

DISCRETE PROBABILITY DISTRIBUTIONS, BINOMIAL DISTRIBUTION AND POISSON

DISTRIBUTION

1. The discrete random variable X has p.d.f given by P(X = x) = kx for x = 12, 13, 14. Find the value of the
constant k.

2. A drawer contains 8 brown socks and 4 blue socks. A sock is taken from the drawer at random, its colour
is noted and it is then replaced. This procedure is performed twice more. If X is the random variable, “the
number of brown socks taken”. Find the probability distribution for X.

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3. The probability distribution of a random variable X is as shown in the table below:

X 1 2 3 4 5

P(X=x) 0.1 0.3 c 0.2 0.1

a) Find the value of y.

b) Find the standard deviation.
c) Find the mode.
d) Find P(1<X<3).
e) Construct the cumulative distribution table.

4. If X~Bin (8, 0.4). Find

a) P(X=2)
b) P(X=0)
c) P(X>6)

5. An unbiased die is thrown 7 times. Find the probability of throwing at least 5 sixes.

6. A fair coin is tossed 6 times. Find the probability of throwing not more than 4 heads.

7. If X~Bin (n, 0.6) and P (X < 1) = 0, 0256. Find n.

8. X is a random variable such that If X~Bin (n, p). Given that E (X) = 2, 4 and p = 0, 3. Find n and standard
deviation of X.

9. An insurance company receives on average 2 claims per week from a certain factory. Assuming that the
number of claims follows a Poisson distribution, Find the probability that it receives more than 3 claims in a
given week.

10. The number of accidents per week in a certain factory follows a Poisson distribution with variance 3,2.
Find the probability that
a) No accidents occur in a particular week.
b) More than 4 accidents occur in a particular week.

11.The following probability distributions of job satisfaction scores for a sample of information systems (IS)
senior executives and middle managers range from a low of 1 (very dissatisfied) to a high of 5 (very
satisfied).

Probability
Job Satisfaction IS Senior IS Middle
Score Executives Managers
1 0.05 0.04
2 0.09 0.12
3 0.03 0.10
4 0.42 0.46
5 0.41 0.28

11.1 What is the expected value of the job satisfaction score for senior executives?
11.2 Compute the standard deviation of job satisfaction scores for senior managers.
11.3 Let X denote the job satisfaction score for IS middle executives
11.3.1 Compute Pr( X  3)
11.3.2 Compute Pr(1  X  2)

12. A manufacturing plant has found from experience that 5 out of every 100 parts do not meet quality
standards. A quality auditor randomly draws a sample of 8 parts from a batch. Using the binomial
distribution answer the following questions:
i. What is the probability that no more than 2 of the 8 parts will be rejected? (6)
ii. What is the probability that more than 2 parts will be rejected? (2)

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13. A discrete random variable follows the binomial process if it can satisfy four conditions. List these four
conditions. (4)

14. Consider a Computer system with jobs arriving at an average of 2 per minute. Assume the arrivals
follow a Poisson distribution, calculate the probability of:
i. zero arrivals in any particular minute. (3)
ii. exactly 2 arrivals in half a minute. (3)
iii. at least 3 arrivals in any particular minute. (3)

15. The average number of calls coming into a switchboard during the busiest part of the day for a small
firm is 5 calls per minute. If the number of incoming calls follows a Poisson distribution, what is the
probability that for any given minute there will be exactly two calls? (5)

16. Suppose that 20% of the population is left handed. Using the binomial distribution find the probability
that in a group of 5 people:
i. at least 2 are left handed (4)
ii. all are left handed (3)

17. Once a week a Cadbury merchandiser replenishes the stock of Milo in 7 stores for which she is
responsible. Experience has shown that there is a one in four chance that a given store will run out of
stock before the merchandiser’s weekly visit.
i. What is the probability that, on a given weekly visit, the merchandiser will find exactly one store
out of stock? (2)
ii. What is the probability that at most 2 stores will be out of stock? (3)
iii. What is the mean number of stores out of stock each week? (2)

18. An average of 2.1 power cuts per year occurs in urban areas in South Africa.
i. What is the probability that a year passes with no cuts? (3)
ii. What is the probability that 2 or more power cuts occur in a year? (5)

19. The records of a Leading Call Centre show that on average 5 calls are answered every 10 minutes.
Calculate the probability that:
i. Three calls are received in any 10 minute period. (5)

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TUTORIAL WORKSHEET FOUR

NORMAL DISTRIBUTION

1. if Z~N (0,1), Find

a) P (Z < 0,874)
b) P(Z > -0,874)
c) P (Z > 0,874)
d) P(Z < -0,874)

2. if Z~N (0,1), Find

a) P(-2,05 < Z < 0)
b) P(1,764 < Z < 2,567)
c) P(-0,98 < Z < -0,16)
d) P(Z < 1.78)

3. If Z~N (0,1), Find

a) P(Z < a) = 0,506
b) P(Z < a) = 0,891
c) P (Z > a) = 0,00122
d) P(Z > a) = 0,0100

4. The heights of boys at a particular age follow a normal distribution with mean 150,3 cm and variance 25
cm.
Find the probability that a boy picked at random from this age group has height
a) Less than 153 cm
b) Less than 148cm
c) More than 158 cm
d) More than 144cm
e) Between 147 cm and 149,5 cm
f) Between 150 cm and 158 cm.

5. An aptitude test is known to have a mean score of 34.75 with a standard deviation of 4.2. A company
requires a standard score of 1.25 for employment as one of its requirements. Using the normal distribution,
answer the following question:

i. Assuming that the company receives 300 applicants, how many of the applicants will be
considered for employment? (6)
ii. List 5 properties of the Normal Distribution. (5)

6. The amount of time devoted to studying Statistics each week by students who achieve an A grade pass in
the course is normally distributed with mean of 7.5 hours and a standard deviation of 2.1 hours.
using the above information, calculate the following:
i. What proportion of A grade students study for more than 10 hours per week? (3)
ii. Find the probability that an A grade student spends between 7 and 9 hours studying. (5)
iii. What is the amount of time below which only 5% of all A grade students spend studying? (7)

7. A machine filling containers of shampoo is set such that the average fill is 18.2 grams with a standard
deviation of 0.50 grams. Assume that the filling of containers by this machine is normally distributed.
i. What is the probability that a container chosen at random will weigh between 17.7 grams and 18.7
grams? (5)
ii. What is the probability that a container chosen at random will weigh more than 19 grams or less
than 17 grams? (6)

8. Consider an investment whose return is normally distributed with a mean of 10% and a standard
deviation of 5%. Using this information answer questions below:
i. Determine the probability of an investor earning a return between 10% and 12%. (4)
ii. Determine the probability of an investor losing money. (5)

9. Long distance calls made by the employees of a company are normally distributed with a mean of 6.3
minutes and a standard deviation of 2.2 minutes. Find the probability that a call:
i. Lasts between 5 and 10 minutes. (5)
ii. Lasts more than 7 minutes. (2)

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 STD121/121E 2023 – Business Statistics
iii. Lasts less than 4 minutes. (2)

10. Assume that the mean life of a particular household electric iron is normally distributed with a mean of
28 months and a standard deviation of 4 months.
i. For a randomly selected electric iron of this make, calculate the probability that it will last between
30 and 34 months? (4)
ii. Calculate the probability that a randomly selected electric iron of this make will fail within 2 years
of date of purchase? (3)
iii. If a guarantee period is to be set, how many months would it have to be to replace no more than
5% of electric irons of this make? (5)

TUTORIAL WORKSHEET FIVE

LINEAR REGRESSION AND CORRELATION ANALYSIS

1. Most of South Africa’s power stations are coal-fired. Assume a random sample of 10 power stations was
selected and their coal usage and electricity generated for 1992 was obtained. The data is given in the table
below:

Coal Used in 1992 (in million tonnes) Electricity Generated (in million kilowatt hours)
15 35

6 18
10 24

18 32
9 24
7 20

14 32
11 29

5 14
8 22
a) Construct a scatter plot of the sample data.

b) Find the straight line regression function to estimate electricity generated from coal used by the method of
least squares.

c) Estimate the level of electricity generated when coal usage is 10 tonnes.

d) Find the correlation coefficient between coal used and electricity generated.

77
STD121/121E 2023 – Business Statistics
2. CNA has kept records of the number of Playstations sold within a week of placing advertisements in
the Daily News. Table 2 (below) shows the number of Playstations sold and the corresponding
number of advertisements placed in the local Daily Newspaper for 12 randomly-selected weeks over
the past year.
Table 2: CNA Advertising Vs Sales
Ads 4 4 3 2 5 2 4 3 5 5 3 4
Sales 26 28 24 18 35 24 36 25 31 37 30 32

i. Identify the independent and dependent variables. (2)

ii. Determine the regression line equation. (7)
iii. Predict the number of Playstations that would be sold if 6 advertisements are placed. (2)

3. A sales director was requested to present a report on the association of Advertising spend on Sales.
The data in Table 3a below shows the amount spent on advertising and the recorded sales.
Table 3a
Advertising R000’s Sales R000’s
10 176
12 200
15 220
13 285
20 230
25 245
38 400
22 248
40 412
35 278
34 228
31 258

i. Calculate the co-efficient of correlation (Pearson’s Co-efficient) and comment on your findings. (7)

4. Briefly explain what Correlation Analysis is. (3)

5. Explain the usefulness of Correlation Analysis to a Business Manager. (3)

6. Are the marks one receives in an examination related to the amount of time spent studying the
subject? To analyze this, a student took a sample of ten (10) students who enrolled in an accounting
class last semester. She asked each o report his or her mark in the course and the total number of
hours spent studying accounting. The data are listed in Table 4.1 below:

Table 4.1
Marks 77 63 79 86 51 78 83 90 65 47
Time 40 42 37 47 25 44 41 48 35 28

Using the information from Table 4.1 above:

i. Identify the independent and dependent variables. (2)
ii. Calculate the correlation co-efficient. (5)
iii. Interpret the result obtained in 4.2.2 above. (2)
iv. Determine the linear regression equation. (6)
v. Predict what mark a student can obtain who spends 60 hours studying. (2)

7. The general manager of a chain of furniture stores believes that experience is the most important
factor in determining the level of success of a salesperson. To examine this belief she records last
month’s sales (in R1 000s) and the years of experience of 10 randomly selected salespeople. These
data are listed in the table 2 below:
Table 2.
Salesperson Years of experience Sales
1 0 7
2 2 9
3 10 20

78
STD121/121E 2023 – Business Statistics
4 3 15
5 8 18
6 5 14
7 12 20
8 7 17
9 20 30
10 15 25

i. Identify the independent and the dependent variables. (2)

ii. Construct a scatter plot to portray the data in Table 2. (4)
iii. Calculate the coefficient of correlation. (7)
iv. Interpret your findings in the above question. (2)
v. Use the least-square method to determine the regression equation. (6)
vi. Explain what the coefficients (the slope and the intercept) of the equation obtained above tell you
about the relationship between years of experience and monthly sales. (3)
vii. Estimate the monthly sales for a salesperson with 16 years of experience. (2)

8. Table 2 shows the number of hours spent on studying for the final Statistics examination and the
marks obtained for a sample of 12 students from the first year students at Marange Business College
in 2012.

Table 2: Marks obtained Vs Hours of study

Hrs 32 16 48 64 45 50 40 20 25 30 35 45
Marks 65 32 67 90 75 82 68 38 40 48 70 70

i. Identify the independent and dependent variables. (2)

ii. Plot the data on a scatter graph. (4)
iii. Find the correlation co-efficient. (5)
iv. Comment on the result obtained above. (2)
v. Determine the regression line equation. (6)
vi. Predict the marks for a student who spends 60 hours preparing for the examination. (2)

9. Discuss the difference between Simple linear regression and Correlation. (6)

TABLE 1: THE DISTRIBUTION FUNCTION (z ) OF THE NORMAL

DISTRIBUTION N(0, 1)

Z 0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09
0.0 0.5000 0.5040 0.5080 0.5120 0.5160 0.5199 0.5239 0.5279 0.5319 0.5359
0.1 0.5398 0.5438 0.5478 0.5517 0.5557 0.5596 0.5636 0.5675 0.5714 0.5753
0.2 0.5793 0.5832 0.5871 0.5910 0.5948 0.5987 0.6026 0.6064 0.6103 0.6141
0.3 0.6179 0.6217 0.6255 0.6293 0.6331 0.6368 0.6406 0.6443 0.6480 0.6517
0.4 0.6554 0.6591 0.6628 0.6664 0.6700 0.6736 0.6772 0.6808 0.6844 0.6879
0.5 0.6915 0.6950 0.6985 0.7019 0.7054 0.7088 0.7123 0.7157 0.7190 0.7224
0.6 0.7257 0.7291 0.7324 0.7357 0.7389 0.7422 0.7454 0.7486 0.7517 0.7549
0.7 0.7580 0.7611 0.7642 0.7673 0.7704 0.7734 0.7764 0.7794 0.7823 0.7852
0.8 0.7881 0.7910 0.7939 0.7967 0.7995 0.8023 0.8051 0.8078 0.8106 0.8133
0.9 0.8159 0.8186 0.8212 0.8238 0.8264 0.8289 0.8315 0.8340 0.8365 0.8389
1.0 0.8413 0.8438 0.8461 0.8485 0.8508 0.8531 0.8554 0.8577 0.8599 0.8621
1.1 0.8643 0.8665 0.8686 0.8708 0.8729 0.8749 0.8770 0.8790 0.8810 0.8830
1.2 0.8849 0.8869 0.8888 0.8907 0.8925 0.8944 0.8962 0.8980 0.8997 0.9015
1.3 0.9032 0.9049 0.9066 0.9082 0.9099 0.9115 0.9131 0.9147 0.9162 0.9177

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STD121/121E 2023 – Business Statistics
1.4 0.9192 0.9207 0.9222 0.9236 0.9251 0.9265 0.9279 0.9292 0.9306 0.9319
1.5 0.9332 0.9345 0.9357 0.9370 0.9382 0.9394 0.9406 0.9418 0.9429 0.9441
1.6 0.9452 0.9463 0.9474 0.9484 0.9495 0.9505 0.9515 0.9525 0.9535 0.9545
1.7 0.9554 0.9564 0.9573 0.9582 0.9591 0.9599 0.9608 0.9616 0.9625 0.9633
1.8 0.9641 0.9649 0.9656 0.9664 0.9671 0.9678 0.9686 0.9693 0.9699 0.9706
1.9 0.9713 0.9719 0.9726 0.9732 0.9738 0.9744 0.9750 0.9756 0.9761 0.9767
2.0 0.9772 0.9778 0.9783 0.9788 0.9793 0.9798 0.9803 0.9808 0.9812 0.9817
2.1 0.9821 0.9826 0.9830 0.9834 0.9838 0.9842 0.9846 0.9850 0.9854 0.9857
2.2 0.9861 0.9864 0.9868 0.9871 0.9875 0.9878 0.9881 0.9884 0.9887 0.9890
2.3 0.9893 0.9896 0.9898 0.9901 0.9904 0.9906 0.9909 0.9911 0.9913 0.9916
2.4 0.9918 0.9920 0.9922 0.9925 0.9927 0.9929 0.9931 0.9932 0.9934 0.9936
2.5 0.9938 0.9940 0.9941 0.9943 0.9945 0.9946 0.9948 0.9949 0.9951 0.9952
2.6 0.9953 0.9955 0.9956 0.9957 0.9959 0.9960 0.9961 0.9962 0.9963 0.9964
2.7 0.9965 0.9966 0.9967 0.9968 0.9969 0.9970 0.9971 0.9972 0.9973 0.9974
2.8 0.9974 0.9975 0.9976 0.9977 0.9977 0.9978 0.9979 0.9979 0.9980 0.9981
2.9 0.9981 0.9982 0.9982 0.9983 0.9984 0.9984 0.9985 0.9985 0.9986 0.9986
3.0 0.9987 0.9987 0.9987 0.9988 0.9988 0.9989 0.9989 0.9989 0.9990 0.9990
3.1 0.9990 0.9991 0.9991 0.9991 0.9992 0.9992 0.9992 0.9992 0.9993 0.9993
3.2 0.9993 0.9993 0.9994 0.9994 0.9994 0.9994 0.9994 0.9995 0.9995 0.9995
3.3 0.9993 0.9993 0.9994 0.9994 0.9994 0.9994 0.9994 0.9995 0.9995 0.9995
3.4 0.9997 0.9997 0.9997 0.9997 0.9997 0.9997 0.9997 0.9997 0.9997 0.9998
3.5 0.9998 0.9998 0.9998 0.9998 0.9998 0.9998 0.9998 0.9998 0.9998 0.9998
3.6 0.9998 0.9998 0.9999 0.9999 0.9999 0.9999 0.9999 0.9999 0.9999 0.9999
3.7 0.9999 0.9999 0.9999 0.9999 0.9999 0.9999 0.9999 0.9999 0.9999 0.9999
3.8 0.9999 0.9999 0.9999 0.9999 0.9999 0.9999 0.9999 0.9999 0.9999 0.9999
3.9 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000

Entries in the table are values of z0

(z )  1( z )

1
(u ) for u  0.5 where u  ( z )
TABLE 2: Entries in the table of the inverse function z  
denotes the standard normal distribution function Note that (z )  1( z ) when ( z )  0.5
(z )  0.5
0.000 0.001 0.002 0.003 0.004 0.005 0.006 0.007 0.008 0.009
0.50 0.0000 0.0025 0.0050 0.0075 0.0100 0.0125 0.0150 0.0175 0.0201 0.0226
0.51 0.0251 0.0276 0.0301 0.0326 0.0351 0.0376 0.0401 0.0426 0.0451 0.0476
0.52 0.0502 0.0527 0.0552 0.0577 0.0602 0.0627 0.0652 0.0677 0.0702 0.0728
0.53 0.0753 0.0778 0.0803 0.0828 0.0853 0.0878 0.0904 0.0929 0.0954 0.0979
0.54 0.1004 0.1030 0.1055 0.1080 0.1105 0.1130 0.1156 0.1181 0.1206 0.1231
0.55 0.1257 0.1282 0.1307 0.1332 0.1358 0.1383 0.1408 0.1434 0.1459 0.1484
0.56 0.1510 0.1535 0.1560 0.1586 0.1611 0.1637 0.1662 0.1687 0.1713 0.1738
0.57 0.1764 0.1789 0.1815 0.1840 0.1866 0.1891 0.1917 0.1942 0.1968 0.1993
0.58 0.2019 0.2045 0.2070 0.2096 0.2121 0.2147 0.2173 0.2198 0.2224 0.2250
0.59 0.2275 0.2301 0.2327 0.2353 0.2378 0.2404 0.2430 0.2456 0.2482 0.2508
0.60 0.2533 0.2559 0.2585 0.2611 0.2637 0.2663 0.2689 0.2715 0.2741 0.2767
0.61 0.2793 0.2819 0.2845 0.2871 0.2898 0.2924 0.2950 0.2976 0.3002 0.3029
0.62 0.3055 0.3081 0.3107 0.3134 0.3160 0.3186 0.3213 0.3239 0.3266 0.3292
0.63 0.3319 0.3345 0.3372 0.3398 0.3425 0.3451 0.3478 0.3505 0.3531 0.3558
0.64 0.3585 0.3611 0.3638 0.3665 0.3692 0.3719 0.3745 0.3772 0.3799 0.3826
0.65 0.3853 0.3880 0.3907 0.3934 0.3961 0.3989 0.4016 0.4043 0.4070 0.4097
0.66 0.4125 0.4152 0.4179 0.4207 0.4234 0.4261 0.4289 0.4316 0.4344 0.4372
0.67 0.4399 0.4427 0.4454 0.4482 0.4510 0.4538 0.4565 0.4593 0.4621 0.4649
0.68 0.4677 0.4705 0.4733 0.4761 0.4789 0.4817 0.4845 0.4874 0.4902 0.4930
0.69 0.4959 0.4987 0.5015 0.5044 0.5072 0.5101 0.5129 0.5158 0.5187 0.5215

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STD121/121E 2023 – Business Statistics
0.70 0.5244 0.5273 0.5302 0.5330 0.5359 0.5388 0.5417 0.5446 0.5476 0.5505
0.71 0.5534 0.5563 0.5592 0.5622 0.5651 0.5681 0.5710 0.5740 0.5769 0.5799
0.72 0.5828 0.5858 0.5888 0.5918 0.5948 0.5978 0.6008 0.6038 0.6068 0.6098
0.73 0.6128 0.6158 0.6189 0.6219 0.6250 0.6280 0.6311 0.6341 0.6372 0.6403
0.74 0.6433 0.6464 0.6495 0.6526 0.6557 0.6588 0.6620 0.6651 0.6682 0.6713
0.75 0.6745 0.6776 0.6808 0.6840 0.6871 0.6903 0.6935 0.6967 0.6999 0.7031
0.76 0.7063 0.7095 0.7128 0.7160 0.7192 0.7225 0.7257 0.7290 0.7323 0.7356
0.77 0.7388 0.7421 0.7454 0.7488 0.7521 0.7554 0.7588 0.7621 0.7655 0.7688
0.78 0.7722 0.7756 0.7790 0.7824 0.7858 0.7892 0.7926 0.7961 0.7995 0.8030
0.79 0.8064 0.8099 0.8134 0.8169 0.8204 0.8239 0.8274 0.8310 0.8345 0.8381
0.80 0.8416 0.8452 0.8488 0.8524 0.8560 0.8596 0.8633 0.8669 0.8705 0.8742
0.81 0.8779 0.8816 0.8853 0.8890 0.8927 0.8965 0.9002 0.9040 0.9078 0.9116
0.82 0.9154 0.9192 0.9230 0.9269 0.9307 0.9346 0.9385 0.9424 0.9463 0.9502
0.83 0.9542 0.9581 0.9621 0.9661 0.9701 0.9741 0.9782 0.9822 0.9863 0.9904
0.84 0.9945 0.9986 1.0027 1.0069 1.0110 1.0152 1.0194 1.0237 1.0279 1.0322
0.85 1.0364 1.0407 1.0450 1.0494 1.0537 1.0581 1.0625 1.0669 1.0714 1.0758
0.86 1.0803 1.0848 1.0893 1.0939 1.0985 1.1031 1.1077 1.1123 1.1170 1.1217
0.87 1.1264 1.1311 1.1359 1.1407 1.1455 1.1503 1.1552 1.1601 1.1650 1.1700
0.88 1.1750 1.1800 1.1850 1.1901 1.1952 1.2004 1.2055 1.2107 1.2160 1.2212
0.89 1.2265 1.2319 1.2372 1.2426 1.2481 1.2536 1.2591 1.2646 1.2702 1.2759
0.90 1.2816 1.2873 1.2930 1.2988 1.3047 1.3106 1.3165 1.3225 1.3285 1.3346
0.91 1.3408 1.3469 1.3532 1.3595 1.3658 1.3722 1.3787 1.3852 1.3917 1.3984
0.92 1.4051 1.4118 1.4187 1.4255 1.4325 1.4395 1.4466 1.4538 1.4611 1.4684
0.93 1.4758 1.4833 1.4909 1.4985 1.5063 1.5141 1.5220 1.5301 1.5382 1.5464
0.94 1.5548 1.5632 1.5718 1.5805 1.5893 1.5982 1.6072 1.6164 1.6258 1.6352
0.95 1.6449 1.6546 1.6646 1.6747 1.6849 1.6954 1.7060 1.7169 1.7279 1.7392
0.96 1.7507 1.7624 1.7744 1.7866 1.7991 1.8119 1.8250 1.8384 1.8522 1.8663
0.97 1.8808 1.8957 1.9110 1.9268 1.9431 1.9600 1.9774 1.9954 2.0141 2.0335
0.98 2.0537 2.0749 2.0969 2.1201 2.1444 2.1701 2.1973 2.2262 2.2571 2.2904
0.99 2.3263 2.3656 2.4089 2.4573 2.5121 2.5758 2.6521 2.7478 2.8782 3.0902

FORMULA SHEET

  
n n n
xi fx mi fi
x  i 1
x  i 1 i i
or x  i 1

n n n
c  n2  f () c  4  f ()
 n

Me  Ome  Q1  Oq 
fme 1
fq
1

c  fm  fm 1  c  34n  f ()

Mo  Omo  Q3  Oq  
2 fm  fm 1  fm 1 3
fq
3

s 2

 (xi i
x) 2

or s 2

 f (x i  x )2
i i
or
n 1 n 1
  i X i  n  m f   m f 
2 2

s 2

X i i
2

s 2
 i
2
i i i i i
n
n 1 n 1
r Pr(A  B )
Pr(A)  Pr(A | B ) 
n Pr(B )

81
STD121/121E 2023 – Business Statistics
Pr(A  B )  Pr(A)  Pr(B )  Pr(A  B )   E [X ]   x Pr(X  x )
all x

Var [X ]  x 2
Pr(X  x )   2
Pr(X  x ) 
xe 
all x
x!
Pr(X  x )  nC x p xq n x ŷ  b0  b1x

b0 
Y i
 b1
X i
b1 
n  X iYi   X i Yi
n n n  X i2   X i 
2

n  X iYi   X i Yi X 
r Z 

n Yi 2  Yi  n  X i2   X i 
2 2

82