Attempt any three questions

1. The credit manager of Becks Trading Co. knows that the company uses three methods to
encourage collection of delinquent accounts. From past collection records, he learns that 70
percent of the accounts are called on personally, 20 percent are phoned, and 10 percent are
sent a letter. The probability of collecting an overdue amount from an account with the three
methods is 0.75, 0.6, and 0.65 respectively. The manager has just received payment from a
past-due account. What is the probability that this account was called on personally? What is
the probability that Becks Trading Co. will receive a payment from a past-due account?

2. Fund-Info provides information to its subscribers to enable them to evaluate the

performance of mutual funds they are considering as potential investment vehicles. A recent
survey of funds whose stated investment goal was growth and income produced the
following data on total annual rate of return over the past five years.

Annual return (%) Frequency

11.0-11.9 2
12.0-12.9 2
13.0-13.9 8
14.0-14.9 10
15.0-15.9 11
16.0-16.9 8
17.0-17.9 3
18.0-18.9 1
According to Chebyshevs rule, between what two values should at least 75% of the sample
observations fall? What percentages of the observations actually do fall in that interval?

3. An employee of a company wants to choose two funds for his Mandatory Provident Fund
(MPF) scheme. Two mutual funds A and B, having the annual returns (percentage changes) X
and Y respectively, are under consideration. The probability distributions of the two returns
are given below.
A -5% 3% 8%
P(X = a) 0.3 0.4 0.3
Assume that X and Y are independent.

(a) Find E(X), E(Y), Var(X) and Var(Y).

(d) Suppose the investor is interested in putting half of his money in both fund A and fund B.
In this regard, the portfolio return Z = 0.5X + 0.5Y is of interest. Find E(Z) and Var(Z).

4. In order to obtain cost savings, a company is considering offering an early retirement

incentive for its older management personnel. The consulting firm that designed the early
retirement program has found that approximately 22% of the employees qualifying for the
program will select early retirement during the first year of eligibility. Assume that the
company offers the early retirement program to 50 of its management personnel. What is the
probability at least 8 but not more than 12 employees will select early retirement in the first
year? What is the expected number of employees who will select early retirement in the first
year?