Tutorial Guide

Every week, there is a new lecture and a tutorial that covers material from the previous
week. Before going to a lecture, students are advised to go a tutorial reviewing what they
have learnt from the previous lecture and preparing for the next lecturer.
Tutorials are an integral part of developing skills in business statistics and data analytics.
Without practice, understanding of key concepts in this subject and implementation of key
techniques cannot be achieved. This will hamper the future study of other subjects, such as
finance and economics.
You should turn up to your tutorial – the one you have been allocated to. Rooms, including
Zoom ones, cater for only a certain quota of students so overcrowding occurs when people
just turn up to any tutorial. By turning up to a tutorial that you shouldn’t be at, you will be
disrupting the learning of students who have the right to be there. Tutorial staff can only
deal with and attend to a certain limited number of students. If you do wish to change your
tutorial, you must do so online via the MyStudent / OneStop Admin.
Please don’t ask the Business Statistics staff to change tutorials because they cannot make
those changes.
If you do prepare for tutorials, you will have several outcomes:
1. You can confirm your learning achievements.
2. You can amend your learning of topics that you may have minor misunderstandings.
3. You can identify where you need to spend more time reviewing.
4. Tutors can move through easier material that everyone is OK with more quickly.
and this means a chance to expand on more problematic areas and to have a better idea
what major you want to choose in the next year.
If you do not prepare, you will fall behind as the tutor will cater to those whom have
prepared. You will think that everything needs reviewing and start freaking out!
Remember, you should devote 6 hours per week to Business Statistics outside of the 3
hours face-to-face contact you have in the form of lectures and tutorials.
You should bring the following to tutorials:
1. Tutorial question sheet and your attempt at the answers to each question
2. Lecture notes and study notes
3. Textbook (optional)
4. Calculator
5. Pens/Pencils and Paper/Exercise book
Tutorial 2 in Week 3: Descriptive Statistics I and Probability
Theory
Question 1. A portfolio manager asks you to help analyse two stocks. It is known that the
mean or expected return of stock A and B are the same, i.e. μ A =μB .

1. If σ A >σ B, which stock do you think is better for investment, assuming the investor is
risk averse? Risk aversion means risk is not preferred.
σ A >σ B means that the distribution of A’s return is more spread out than that of B’s
return. So A’s return is more likely to take extreme values than B’s return. If an
investor is risk averse, she will not be interested in investing stock A because
extreme or big negative return is more likely to happen, compared with B’s return
whose standard deviation and thus variability are smaller.

2. If σ A =σ B, but the distribution of stock B’s return is symmetric while that of stock A’s
return is right-skewed. Which stock do you think is better for investment?
μ A =μB means the same expected return and σ A =σ B means the variability of two
distributions are the same. Yet A’s return, which is right-skewed or positively
skewed, has higher probability of taking bigger values than that of taking smaller
values. For example if we assume μ A =μB =0, A’s return is more likely to take big
positive values rather than big negative values , so A should be chosen.

3. If σ A =σ B, and both returns are left-skewed with the same skewness. If the kurtosis
of stock A’s return is larger than that of stock B’s return, which stock do you think is
better for investment?
Kurtosis measures the tail behaviour of a distribution. Everything but kurtosis is the
same, so the decision should solely be based on kurtosis. Kurtosis of A’s return is
larger, meaning that it has higher probability of taking values near the centre (the
centre, measured by mean or median or mode, is the same for B’s return since mean
and skewness are the same for both stock returns) and of taking values far away
from the centre, i.e. in the tails. The distribution of A’s returns has fatter tails than
the distribution of B’s return, i.e. the probability of getting extreme returns is higher
for stock A than B. A risk averse investor would avoid such risks and prefer stock B.
4. In the case that variance (thus std), skewness and kurtosis are the same, how can we
choose stock to invest based on comparison of μ A and μ B?

In this case, an investor should choose the one with larger mean or expected return.
That the variances (or std), skewnesses and kurtoses are the same for both
distributions means “risks” from the two stock returns are the same. So whichever
delivers higher expected return, i.e. the mean return, should be invested upon.
Remember when means are different (while every other measures are the same),
distributions are identical in every respect except that they are simply shifted along
 the returns axis. Bigger mean return means the whole distribution shifts more
towards bigger positive returns.
Question 2. A questionnaire designed by a pet store was sent to its customers at random.
The questionnaire asks a very simple question: what do you own, with answers: cat, dog,
both, neither. Based on the results, the manager has prepared the following Venn Diagram

Cat Dog
0.1
0.25 0.35
0.3
1. If one person is chosen at random, what is the probability that they don’t own a
dog?

First, notice that all probabilities shown in the Venn diagram adds up to one. So each
probability corresponds to the area on which it is written. Namely, P ( Cat ⋂ Dog )=0.1
which means that the probability that someone has both cats and dogs equal to 0.1;
P ( ( Cat ∪ Dog )' ) =0.3, meaning that the probability that someone does not own a cat
or a dog equals 0.3.

The question wants us to compute P ( Do g' ) =1- P ( Dog )=1−( 0.1+ 0.35 )=0.55 .

2. What event does the probability 0.35 correspond to?

0.35 corresponds to the moon-shape area, which is the intersection of Dog and Cat '
, so P ( Dog∩Ca t ' ) =0.35, meaning that the probability that someone owns a dog but
no cat is 0.35.

3. Calculate P(Cat ∩ Dog)

 The intersection gives P ( Cat ∩ Dog ) =0.1.

4. If one person who owns a cat is chosen at random, what is the probability that they
also own a dog?

When computing the probability that the person has a dog and a cat, we must take
into account that it is known a prior that this person has a cat. This is done via Bayes
rule. We have
P ( Dog ∩Cat ) 0.1 0.1
P ( Dog|Cat )= = = =0.286
P ( Cat ) 0.25+ 0.1 0.35

Question 3. The following table shows the probability of male and female customers coming
to EB Game Hornsby branch who purchase either PC games or console (non-PC) games.

Gaming platform chosen by customers

Male gamers Female gamers Total
PC games 0.12 0.25 a
Console games 0.54 0.09 b
Total c d e

1. Complete the table by computing a, b, c, d and e.

a , b , c and d are marginal probabilities. Based on the law of total probability, we
have
a=P ( PC )=P ( PC ∩ Male ) + P ( PC ∩ Female )=0.12+0.25=0.37
b=P (Console ) =P ( Console ∩ Male ) + P (Console ∩ Female )=0.54+0.09=0.63
c=P ( Male ) =P ( Male ∩ PC ) + P ( Male ∩Cosole )=0.12+0.54=0.66
d=P ( Female ) =P ( Female ∩ PC ) + P ( Female ∩Console )=0.25+0.09=0.34

Apparently, e is the probability for the (event that covers the) whole sample space;
that is
e=1=P ( PC )+ P ( Console )=P ( Male ) + P ( Female )=P ( PC ∩ Male )+ P ( PC ∩ Female ) + P ( Console ∩ M

2. The branch manager Charlotte insists that the event “platforms on which games run”
and the event “genders” are independent, you, trained in statistics, reply that if her
independence hypothesis were true, the table would have looked like the following.
(complete the table by computing f , g, h and i, using a, b, c, d and e computed in
the previous question).

Gaming platform chosen by customers, if gender and choice of platform are

independent
Male gamers Female gamers Total
PC games f g a
Console games h i b
Total c d e
 Treating “platforms on which games run” and the event “genders” as if they were
independent, we are asked to fill in f , g , h and i from the following table

Gaming platform chosen by customers, if gender and choice of platform are

independent
Male gamers Female gamers Total
PC games 𝑓 g 0.37
Console games h i 0.63
Total 0.66 0.34 1
Under the assumption of independence, the joint probability P( A ∩ B) can be
expressed in terms of the product of marginal probabilities, i.e.
P ( A ∩ B )=P ( A ) × P (B). So, under independence, we have:
f =P ( PC ∩ Male )=P ( PC ) × P ( Male )=0.37 × 0.66=0.2442,
g=P ( PC ∩ Female ) =P ( PC ) × P ( Female )=0.37× 0.34=0.1258,
h=P (Console ∩ Male )=P ( Console ) × P ( Male )=0.63 ×0.66=0.4158,
i=P ( Console ∩ Female ) =P ( Console ) × P ( Female )=0.63 × 0.34=0.2142.

3. Do you think these events are independent?

If independence were true, we would expect
P ( PC ∩ Male )=P ( PC ) × P ( Male )=0.2442, which is different from the what we
actually observe P ( PC ∩ Male )=0.12. This discrepancy is also observed for other
joint probabilities. So platforms chosen by customers and their genders may not be
independent.
4. Compute the probability P( gender=male∨platform=PC) and
P( platform=console∨gender =female ).
P ( Male∩ PC ) 0.12
Based on Bayes rule, P ( Male|PC )= = =0.3243, and
P ( PC ) 0.37
P ( Console ∩ Female ) 0.09
P ( Console|Female )= = =0.2647
P ( Female ) 0.34

Question 4. H&M is running a sales campaign which randomly gives away a $5 coupon to
customers who register their cell phone. If a customer wins the coupon by luck (random
probability), she will receive a QR code that contains digital information of the coupon sent
to her registered cell phone. H&M says the probability of winning a coupon equals 0.7.
1. If we define X to be the number of registered customers who win the coupon out of
20 registered customers as the random variable, what distribution does this random
variable follow?
Let X denote this random variable. X records the number of successes, namely
those who win the coupon, out of 20 trials, namely registered customers, with the
success rate, namely the probability of winning, being 0.7; and whether one
customer wins the coupon or not is independent on whether not others win. So X
 follows the binomial distribution with n=20 trials and success rate p=0.7.
Notationally, X ∼ Bin ( n=20 , p=0.7 ).
2. What parameters does this distribution have?
Binomial distribution is characterised by two parameters: number of trials n and
success rate p. In our case, n=20 and p=0.7.
3. Compute the probability that 10 out of the 20 customers win the coupon.
Mathematically, X ∼ Bin(n=20 , p=0.7), we are asked to compute
P( X =10 ; n=20 , p=0.7). Given by the formula of the probability distribution
function (pdf) for binomially distributed r.v.

P ( X=x ; n , p )= n p x (1−p )
n−x
()x

We plug in values of n and p, and compute for probability when x=10. It follows
20 ! 1 ×2 × …
P ( X=10 ; n=20 , p=0.7 )= 20 0.7 ( 1−0.7 )
10 20−10 10 20−10

10 ( ) =
10 ! ( 20−10 ) !
×0.7 ( 1−0.7 ) =
1 ×2 ×… × 10×

4. What is the expected number of winners if 20 customers are randomly chosen?

The expected number of winners out of 20 is the mean or expectation of the
binomial distribution Bin(n=20 , p=0.7). We know if X ∼ Bin(n , p), the mean or
expectation μ X =E ( X ) =np, which is the average number of successes in n trials
when each outcome has probability p of success. So the expected number of
winners out of 20 is np=20 ×0.7=14.