Indian Institute of Management

Ahmedabad
PGP-I/ABM-I/FPM-I

TB/KS/ GD

PROBABILITY AND STATISTICS

Slot 1 Exam

Duration: 3 hours

Maximum Marks: 100

Instructions
1. THIS IS AN OPEN BOOK, OPEN CLASSNOTES EXAM.
2. No clarification will be provided. Wherever necessary, please make suitable assumptions
and specify the same.
3. Please read the questions carefully before answering. Your answers must be supported by
proper explanations.
4. Your work must be neat and legible. All rough calculations should be shown.
5. All events and random variables must be clearly defined. If you use any result (like Bayes
Theorem, mean of a distribution computed from rate, CLT) or make an assumption (like
independence) indicate it clearly when you are using it. Unless you follow this instruction up
to 50% marks may be deducted.
6. Process of answering a question is equally important as the final result. Partial credits are
not always guaranteed.
7. There are 7 questions in this exam. You need to answer all questions.
8. Where required, you may use statistical tables for Normal, Poisson, Binomial etc. that is
part of the text or class material, for the computations.

Question 1:

A coin is tossed 3 times in a row independently. Let us assume that probability of heads
= p and probability of tails=1-p and that these probabilities do not change from one toss
to another toss. .
a) Write down the sample space for the experiment and the probabilities for each
outcome.
We define the following random variables:
X= Number of heads minus number of tails.
Y= Minimum (number of heads, number of tails).
b)
c)
d)
e)
f)

Write down the values taken by X and Y for each outcome in the sample space.
Write down the joint distribution of X and Y.
Write down the marginal distributions of X and Y.
If p=.5, what is Covariance (X,Y) ?
If p=.5, are X and Y independent?.

(2+2+4+ 2+3+2)
Question 2:
A 6-faced die is independently thrown 10 times. Each throw leads to one of the
outcomes viz. 1, 2, 3, 4, 5 or 6, depending on the face that shows up. In each throw, the
occurrence of face 2 is twice as likely as face 1, occurrence of face 3 is thrice as likely as
face 1, and in general occurrence of face i is i-times as likely as face 1, for i=2,3,4,5,6.
Define the following random variables:
X1 = value of the face that shows up in the first throw.
(For example, if face 2 shows up in the first throw, then X1=2. If face 6 shows up in the
first throw, then X1=6). Similarly, X2 = value of the face that shows up in the second
throw. In general, let Xj = value of the face that shows up in the jth throw, for j=1,2,, 10.
Let X= the sum of the outcomes from the 10 independent throws of the die.
i.e., X= X1+ X2+ +X10
a)
b)
c)
d)

Write down the p.m.f. for the random variable Xj.

What is E[Xj] and variance[Xj]
What is E[X] and Variance[X]?
What is P(X=10)?

(4+5+4+2)

Question 3:

A machine working continuously is repaired and brought to working condition each time
it fails. It is assumed that the machine is started immediately after every repair. The
time till failure after every repair is known to satisfy the memory-less property and
hence is exponentially distributed. It is known from past experience that there is a 50%
chance that the machine will fail within 20 hours of repair.
a) What is the expected time for the machine to fail?
b) If it known that as of now the machine has already been working for 100 hours,
what is the expected time from now until the next failure?
c) After a repair what is the probability that it will work for at least 40 more hours?
d) If a new repairing technology is introduced that reduces the probability of failure
within 20 hours of repair to 25%, what would then be the average waiting time for
failure after the first repair ?
(2+2+5+3)
Question 4:
Suppose the consulate of country A receives on the average 10 applications for
immigrant visa from people in country B every day. If the number of applicants is 4 or
less then everyone gets the visa. If it is greater than 4, then only the first 4 applicants
are given the visa and rest of them are refused a visa. Making suitable assumptions find:
a)
b)

The probability that there is at least one visa-refusal on a randomly chosen day.
Average number of applicants receiving visa in a day.
(5 + 8 =13)

Question 5:
An insurance company uses the following calculation to charge premiums (in rupees) to
car owners depending on the range of miles driven as of beginning of policy year.
Suppose x miles have been driven, then the premium charged ( )is given by:

( )

Suppose that the miles driven by any car insured by this company follows a uniform
distribution between 0 and 15,000.
a) What percentage of cars insured by the company pay a premium less than Rs.
1000?.
b) Given that a car paid premium less than Rs. 1000, what is the probability that it had
driven more than 10,000 miles?
(5+5)
Question 6:
The weekly salaries paid to employees of a small company that supplies part-time
laborers is on an average $500 with a standard deviation of $100. Assume that the
distribution of weekly salaries paid to employees of the company is approximately
normally distributed.
a) What percentage of employees makes more than $400 per week?
b) Whats the 99th percentile of the weekly salary distribution?
c) If there is a 5% salary increase for the next year, what will be the distribution of
weekly salaries for next year?
(6+4+5)
Question 7:
A volunteer tourist guide at a heritage site in India does not charge a fee for her
services. However, she accepts tips provided by the tourists. For every tourist she
guides, she receives either a tip of 0 or 100 or 200 rupees with equal probabilities (i.e.
=1/3). Assume that this is her only source of income.

a) What is the expected value and standard deviation of income from each tourist?

b) If she guides 5000 tourists during a year, what is the expected value and standard
deviation of her total annual income?. Using Central Limit Theorem (CLT), find the
probability that her income during the year will be less than Rs. 5,15,000.
c) Suppose she wants to ensure that the probability of her income falling below
5,15,000 should be less than 5%. Using CLT, determine whether she can achieve this
target by planning to guide 5250 tourists?.
(5+(5+5)+5)

PS 1 Slot I Exam Solution:Q-1 (a)

P(H) =

, P(H) = Probability that head comes up in a toss.

P(T) = (1- ), P(T) = Probability that tail comes up in to toss.

Sample Space = *

It is given that tosses are independent. Hence, the probabilities for each outcomes are as below,
Out Comes
P(HHH)
P(HTH)
P(HHT)
P(THH)
P(HTT)
P(THT)
P(TTH)
P(TTT)

Probability

(
(
(
(

(1- )
(1- )
(1- )
)
)
)
)

Q-1 (b)
We defined the following random variables:X = Number of heads minus number of tails.
Y = Minimum (Number of heads, number of tails).
Out Comes
P(HHH)
P(HTH)
P(HHT)
P(THH)
P(HTT)
P(THT)
P(TTH)
P(TTT)

No of
Heads
3
2
2
2
1
1
1
0

No of
Tails
0
1
1
1
2
2
2
3

Probability

3
1
1
1
-1
-1
-1
-3

0
1
1
1
1
1
1
0

(1- )
(1- )
(1- )
)
)
)
)

(
(
(
(

Q-1 (c)
Based on answer to 1b, X can take values in *

+ and Y can take values in *

Joint distribution of (X,Y) is given by specifying P(X=k, Y=r) where k can be any value in *
be any value in * + . Now,
P(X=-3, Y=0) = P(TTT) = (
P(X=-3, Y=1)= 0

P(X=-1, Y=0) = 0
P(X=-1,Y=1) = P(HTT)+P(THT)+P(TTH) =

P(X=1,Y=0) = 0
P(X=1,Y=1) = P(HTH)+P(HHT)+P(THH) =

(1- )

P(X=3,Y=0) = P(HHH) =
P(X=3, Y=1) = 0
The joint distribution of X & Y can be summarized as in the table below.
X=k
-1
0
(

-3
Y=r

0
1

)
0

1
0
(1- )

3
0

Q-1 (d)
Let marginal distribution of X is,
X=k
-3
-1
1
3

P(X=k)
(
)
(
)
(1- )

Marginal distribution of Y is,

Y=r
0
1

(
(

P(Y=r)
) +
)

+ and r can

Q-1 (e)
( )) (

Cov (X, Y) = [(

( )]

= E(XY) E(X)E(Y)..(1)
For p = 0.5, the joint distribution (obtained in 1c) becomes:
X=k
Y=r

0
1

-3
0.125
0

-1
0
0.375

1
0
0.375

3
0.125
0

So now,
E (X) = (using 1d) = (-3) * .125 + (-1)*.375 + (1)*.375 +3*.125 =0
This also implies E(X)*E(Y)=0
To compute E(XY), the Distribution of XY is as follows.
XY takes value 0 when Y=0, hence has probability =.125+.125= .250
XY takes value -3 when X=-3, Y=1, probability =0
XY takes value -1 when X=-1, Y=1, probability =.375
XY takes value 1 when X=1, Y=1, probability =.375
XY takes value -3 when X=3, Y=1, probability =0
Hence E(XY) = 0*.250 + (-3)*0 + (-1)*.375 +1*.375 + 3* 0 = 0
Cov (X, Y) = E(XY) E(X)E(Y) = 0

Q-1 (f)
Cov (X,Y) = 0 does not imply independence
If X,Y are independent, then P(X=k ,Y =r) = P(X=k)*P(Y=r) must hold for all values of k and r.
Note that P(X=-3, Y=1) = 0, but P(X=-3) = 0.125 and P(Y = 1) = 0.75
So, P(X=-3, Y= ) P(X=-3)* P(Y = 1)
So, X & Y are not independent.

Q-2
S=*

Let p = Probability of occurrence of 1 in a throw. Then it is given that probability of occurrence of 2,3,4,5,6 are
respectively 2p,3p, 4p,5p,6p.
Now,
(

p+2p+3p+4p+5p+6p = 1
21p = 1
p=

Q-2 (a)
= Value of face that comes up in jth throw of die. Its pmf is given by:
(

=k
1
2
3
4
5
6

Q-2 (b)
E[ ] =
= 1*

(
+ 2*

=
=
E[

] = 4.33

)
+ 3*

+ 4*

+ 5*

+6*

= k)

Now,
Variance [

] =E (

) ( (

))
(

1
4
9
16
25
36

E(

) = 1*

+ 4*

+ 9*

+ 16*

+ 25*

+ 36*.

=
=
E(

= 21

So, Now
Variance [

] = E(

) ( (

= 21- (

))

= 21- 18.74
Variance [

] = 2.251

Q-2 (c)
X=

E(X) = E(

+ +
) + E(

We knowE ( ) =
So,
E(X) = 10* E ( )
= 10 *

= Sum of outcomes from 10 throw of the die

) + + E(

for j = 1,2,,10

=
= 43.33
All the throws are independent.
So, Cov (

)=0

where ij

Since all the covariance terms become zero.

Var (X) = Var (
Var ( ) = 2.237

) + Var (

) + . . . + Var (

When j = 1,2,,10

Var (X) =10 Var ( )

= 10 * 2.251
= 22.51

Q-2 (d)
For X = 10
Each throw can take a minimum value of 1. Hence the event {X=1} is same as *
Further, since tosses are independent, P (X=10) = P (
=

=( )

*.*

(10 times)

=1) * P (

=1) * ..* P (

=1,
=1)

=1,,

=1}

Question 3: Solution:Define the random variable:-

X = Time to failure of machine after every repair.

It is given that X is exponentially distributed.
So, X ~ Exp ()

It is also given that , P(X<=20) =

For Exponential Distribution, P (X <= a) = 1 - e-a , where a > 0

So, P (X <= 20) = 1 - e-20. = 0.5
1 - e-20. = 0.5
e-20. = 0.5
-20 . = log 0.5
= 0.0346
X ~ Exp () ~ Exp (0.0346)

Solution for (a): what is the expected time for the machine to fail?
E(X) = 1/ =1/ 0.0346 = 28.854 Hrs.

Solution for (b): Suppose Y = the time from now until the next failure given that it has been working for
100 hrs. Due to memory less property, Y would again follow the same exponential distribution as X
defined in part (a).
Expected time to failure from now until next failure, knowing that it has worked for 100 Hrs =E(Y)
= 1/ = 28.854 Hrs.

Solution for (c): Let X be as defined in (a). Then we want

P(X >= 40) = 1 P(X < 40)
= 1 [ 1 e-40. ]
= e-40. = e-40 * 0.0346 = 0.2505
25.05% chance that it would work for at least 40 more hours after a repair.

Solution for (d): If a new repairing technology is introduced that reduces the probability of failure within
20 hours of repair to 25%, then probability of failure within 20 hours of repair = 0.25
Z = The time to failure after the (new) repair.
Assuming that the memory less propery still holds, Z~ Exp ()
(

)= 0.25

1 - e-20. = 0.25 e-20. = 0.75

-20 . = log 0.75 = log 0.75 /( -20)
= 0.0143
-

Y ~ Exp () ~ Exp (0.0143)

Expected time for machine to fail after the first repair is exponentially distributed.
E(Y) = 1/ = mean time between failures.
E(Y) = 1/ 0.0143 = 69.52 Hrs. //

Question 4: -.

Let define the random variable:X = Total number of visa applicants arriving at the counter on any given day.

Assumption:X follows the Poisson distribution.

So, X ~ Pois ()
where = the average number of applications received by the consulate in a day = 10 (given)
X ~ Pois (10)
Probability for Poisson distribution is given by:
P(X = k) = e- . k / k! , for k=0,1,2,,infinity (A)

Solution for (a):

Let X be defined as above.
Probability of at least one rejection in a day = P(X > 4) = 1 P(X <= 4)
= 1 P(X=0) P(X=1) P(X=2) P(X=3) P(X=4)
Using formula in (A)
P(X >4) = 1 e-10 . 100 / 0! e-10 . 101 / 1! e-10 . 102 / 2! e-10 . 103 / 3! e-10 . 104 / 4!
= 1 e-10 [100 / 0! + 101 / 1! + 102 / 2! + 103 / 3! + 104 / 4!]
= 1 e-10 [1+10+50+166.6+416.67]
=

0.9707 .(B)

Solution for (b):

Let define the random variable,
Y = No of applicants receiving visa in a day.
If X is as defined above then:
o Y = X; if X <= 3
= 4; if X > 4

Average no of applicants receiving visa in a day

=E[Y] = y * P(Y=y) = 0*P(Y=0)+1*P(Y=1)+2*P(Y=2)+3*P(Y=3)+ 4*P(Y=4)
Note that P(Y=y)= P(X=y) for y<=3 and P(Y=4) = P(X>=4) = P(X=4)+P(X>4)
So, E[Y]= 0*P(X=0) +1*P(X=1) +2*P(X=2) +3*P(X=3) + 4*(P(X=4) +P(X>4))
= 0*(e-10 *100 / 0!) +1*(e-10*101 / 1!) +2*(e-10*102 / 2!) +3*(e-10*103 / 3!) +4*(e-10 *104 / 4!) + 4(0.9707)
(From equation and result B)
= 0.1033 + 4[0.9707] = 0.1033+3.8829= 3.9862

Question 5: Solution:Premium, P(x) = 0.1* (10,000 - x) + 500; if x < 10,000

= 500

; if x >= 10,000(A)

Where x miles have been driven.

Let define the random variable, X = Miles driven by a car insured by the company as of beginning of policy
year.
It is given that X ~ U(0, 15000) (i.e. uniform distribution)
Solution for (a): What percentage of cars insured by the company pay a premium less than Rs.1000/-?
-Let X be as defined above. Then, we want to find P(P(X) < 1000)
Note that P(X) =500 is <1000 if X>=10000.
Also, note that P(X) = (0.1* (10,000 - X) + 500) < 1000 if X>5000.
In summary, P(X) < 1000 is same as the event (X>5000)..
Therefore, P (P(X) < 1000) = P (X>5000) = 1 P(X <= 5000) which since X~U(0,15000)
= 1 (5000/15000) = 1 1/3= 2/3
So 2/3rd of cars pay a premium less than 1000.

Solution for (b): Given that a car paid premium less than Rs.1000/-, what is the probability that it had
driven more than 10,000 miles?
We want to find P(X > 10,000 | P(X) < 1,000)
We saw in part (a) that P(X)<1000 is as same as X>5000.
So, P(X > 10,000 | P(X) < 1,000) = P(X > 10,000 | X>5000)
= P(X > 10,000 X > 5,000) / P(X>5000)= P(X>10000)/P(X>5000) = (5000/15000) / (10000/15000)
= 0.5 //

Question: 6.
Let X=weekly salary paid to an employee of the small company.
Then it is given that X follows Normal with mean = $500 and sd= $ 100.
i.e. E(X)= =$500 , sd(X)= = $100.
So X ~ Normal (500,variance=100^2)
[ note since ( - 3 )=200 is still positive. The numbers of negative values are very less and can be safely neglected.]
a) What percentage of employees make more than $400 per week?
P(X400)=P((X-)/ >($400-)/)
=P (Z>(400-500)/100)

, where Z~N(0,1)

=P(Z>-1) =1-P(Z<-1) =1-P(Z>1) =P(Z<1) =0.8413

b) Whats the 99th percentile of the weekly salaries distribution?
We want x such that P (Xx)=0.99.
So, P((X-)/ (x-)/)= P (Z (x-500)/100) = 0.99
From standard normal table we get, (x-500)/100=2.33
So x=733
99th percentile of the weekly salary is 733.

c) If there is a 5% salary increase for the next year , what will be the distribution of weekly salaries for next year?
Let Y denote the weekly salary of an employee of the company during the next year.
Then it is given that Y =1.05 x
E(Y) =1.05E(X) = 525.
V(Y) =V (1.05 X) =1.05^2 * V(X) =1.05^2 *100^2

= 11025

From property of normal distribution, we know (1.05X) (which is a linear function of X) will also follow a normal
distribution.
Hence, Y ~ Normal (525, variance=11025).

Question: 7
Answer 7
Let X denotes the tip that the tourist guide receives.
It is given that P (X=x) = 1/3. For x in {0,100,200)
Assumption: The tips given by tourists are independent of each other.
a) What is the expected value and standard deviation of income from each tourist?
X

100

200

P(X)

1/3

1/3

1/3

E (X) = P ( x=0) . 0+P(x=100)100 + P(X = 200)200

= 1/3 X 100 + 1/3 X 200
= 1/3 X 100 + 1/3 X 200
= 100
V(x) =

2
x

=E(x2 ) [E(X)]2

= P ( X=0)*02 + P ( X=100)*1002 + P (X=200)*2002 1002

= 1/3 [10000+40000] 10000
= 6666.67
Sd (x),

81.65.

b) If she guides 5000 tourists during a year , what is the expected value and standard deviation of her total income?
Using Central Limit Theorem (CLT), find probability that her will be less than Rs.5,15,000.
Let Xi denotes the tip from ith tourist. It is given that Xi are identically distributed . Assuming that tips given
different tourists are independent of each other, we have Xis are independent and identically distributed
Hence we can apply CLT or Central Limit Theorem.
Accordingly, the total income from 5000 tourists would be given by the random variable X, defined as
X = X1+ X2 + X3 + ----------+X5000
E[X1 ]= = 100 , SD[X1 ] = = 81.65
E (X) = E (X1+ X2 + X3 + ----------+X5000)
= E (X1)+E (X2) +-----------+E( X5000)
= + +------------- + (5000 times)
= 5000 = 500000

V ( X ) = V (X1+ X2 + X3 + ----------+X5000)
using independence = V (X1)+ V(X2) + ----------+V(X5000)
( )

= 5000

= 5000* (81.65)^2

= 5773.5

Using Central limit theorem, (X- E(X)) /SD(X) is approximately N(0,1).

Or (X - n)/(n) is N(0,1) approximately where n=5000, = 5000, =81.65

Therefore,
P (X<515000) = (515000-50000/5773.50), where is the standard normal cumulative distribution function.
= (2.598)
Using table, (2.598) = 0.9953. So probability that the income will be less than 515000 is approximately 99.53%.
c) Suppose she wants to ensure less that probability of her income falling below
515,000 should be less than 5%. Using CLT, determine whether she can achieve this target by planning to guide
5250 tourists?
Now let income from 5250 tourists be denoted by X= X1+X2+-------+X5250
As in (b), since Xis are independent and identically distributed (iid), we can use CLT
i.e. (X - n)/(n) is N(0,1) approximately where n=5250, = 5000, =81.65
Now, we want to find P(X<515000)
P( (X - n)/(n) <(515000 - n)/(n))
P( (X- 525000)/5916.1 < (51500-52500)/5961.1)
P (Z < -1.69)
1 P (Z < 1.69)
1- 0.9545
0.0455
P ( X < 515000) = 0.0455
X<515000 is 4.55%.
Yes, she will be able to achieve her target by planning to guide 5250 tourists.