1. Business and Economic Forecasting
Lecture 1 A Review of Basic Statistical Concepts
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

2. Basic Vocabulary VARIABLES
Variables are characteristics of an item or individual and are what you analyze when you use a statistical method.
DATA
Data are the different values associated with a variable.
OPERATIONAL DEFINITIONS
Data values are meaningless unless their variables have operational definitions, universally accepted meanings that are clear to all associated with an analysis.
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

3. Basic Vocabulary POPULATION
A population consists of all the items or individuals about which you want to draw a conclusion. The population is the “large group.”
SAMPLE
A sample is the portion of a population selected for analysis. The sample is the “small group.”
PARAMETER
A parameter is a numerical measure that describes a characteristic of a population.
STATISTIC
A statistic is a numerical measure that describes a characteristic of a sample.
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4. Population vs. Sample Population Sample
Measures used to describe the population are called parameters
Measures used to describe the sample are called statistics
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5. Types of Variables
Categorical (qualitative) variables have values that can only be placed into categories, such as “yes” and “no.”
Numerical (quantitative) variables have values that represent quantities.
Discrete variables arise from a counting process
Continuous variables arise from a measuring process
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

6. Types of Variables Variables Categorical Numerical Discrete Continuous
Examples:
Marital Status
Political Party
Eye Color
(Defined categories)
Examples:
Number of Children
Defects per hour
(Counted items)
Examples:
Weight
Voltage
(Measured characteristics)
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

7. Summary Definitions DCOVA
The central tendency is the extent to which all the data values group around a typical or central value.
The variation is the amount of dispersion or scattering of values
The shape is the pattern of the distribution of values from the lowest value to the highest value.
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

8. Measures of Central Tendency: The Mean
DCOVA
The arithmetic mean (often just called the “mean”) is the most common measure of central tendency
For a sample of size n:
The ith value
Pronounced x-bar
Sample size
Observed values
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

9. Measures of Central Tendency: The Mean
DCOVA
(continued)
The most common measure of central tendency
Mean = sum of values divided by the number of values
Affected by extreme values (outliers)
Mean = 13
Mean = 14
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

10. Measures of Central Tendency: The Median
DCOVA
In an ordered array, the median is the “middle” number (50% above, 50% below)
Not affected by extreme values
Median = 13
Median = 13
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

11. Measures of Central Tendency: Locating the Median
DCOVA
The location of the median when the values are in numerical order (smallest to largest):
If the number of values is odd, the median is the middle number
If the number of values is even, the median is the average of the two middle numbers
Note that is not the value of the median, only the position of
the median in the ranked data
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

12. Measures of Central Tendency: The Mode
DCOVA
Value that occurs most often
Not affected by extreme values
Used for either numerical or categorical (nominal) data
There may be no mode
There may be several modes
No Mode
Mode = 9
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

13. Measures of Central Tendency: Review Example
DCOVA
House Prices: $2,000,000
$ 500, $ 300, $ 100, $ 100,000
Sum $ 3,000,000
Mean: ($3,000,000/5)
= $600,000
Median: middle value of ranked data = $300,000
Mode: most frequent value = $100,000
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

14. Measures of Central Tendency: Which Measure to Choose?
DCOVA
The mean is generally used, unless extreme values (outliers) exist.
The median is often used, since the median is not sensitive to extreme values. For example, median home prices may be reported for a region; it is less sensitive to outliers.
In some situations it makes sense to report both the mean and the median.
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

15. Measure of Central Tendency For The Rate Of Change Of A Variable Over Time: The Geometric Mean & The Geometric Rate of Return
DCOVA
Geometric mean
Used to measure the rate of change of a variable over time
Geometric mean rate of return
Measures the status of an investment over time
Where Ri is the rate of return in time period i
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16. The Geometric Mean Rate of Return: Example
DCOVA
An investment of $100,000 declined to $50,000 at the end of year one and rebounded to $100,000 at end of year two:
50% decrease % increase
The overall two-year per year return is zero, since it started and ended at the same level.
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

17. The Geometric Mean Rate of Return: Example
(continued)
DCOVA
Use the 1-year returns to compute the arithmetic mean and the geometric mean:
Arithmetic mean rate of return:
Misleading result
Geometric mean rate of return:
More
representative
result
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

18. Measures of Central Tendency: Summary
DCOVA
Central Tendency
Arithmetic Mean
Median
Mode
Geometric Mean
Middle value in the ordered array
Most frequently observed value
Rate of change of
a variable over time
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

19. Coefficient of Variation
Measures of Variation
DCOVA
Variation
Standard Deviation
Coefficient of Variation
Range
Variance
Measures of variation give information on the spread or variability or dispersion of the data values.
Same center,
different variation
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20. Measures of Variation: The Range
DCOVA
Simplest measure of variation
Difference between the largest and the smallest values:
Range = Xlargest – Xsmallest
Example:
Range = = 12
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21. Measures of Variation: Why The Range Can Be Misleading
DCOVA
Ignores the way in which data are distributed
Sensitive to outliers
Range = = 5
Range = = 5
1,1,1,1,1,1,1,1,1,1,1,2,2,2,2,2,2,2,2,3,3,3,3,4,5
Range = = 4
1,1,1,1,1,1,1,1,1,1,1,2,2,2,2,2,2,2,2,3,3,3,3,4,120
Range = = 119
Chap 3-21
Chap 3-21
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22. Measures of Variation: The Sample Variance
DCOVA
Average (approximately) of squared deviations of values from the mean
Sample variance:
Where
= arithmetic mean
n = sample size
Xi = ith value of the variable X
Chap 3-22
Chap 3-22
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23. Measures of Variation: The Sample Standard Deviation
DCOVA
Most commonly used measure of variation
Shows variation about the mean
Is the square root of the variance
Has the same units as the original data
Sample standard deviation:
Chap 3-23
Chap 3-23
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24. Measures of Variation: The Standard Deviation
DCOVA
Steps for Computing Standard Deviation
1. Compute the difference between each value and the mean.
2. Square each difference.
3. Add the squared differences.
4. Divide this total by n-1 to get the sample variance.
5. Take the square root of the sample variance to get the sample standard deviation.
Chap 3-24
Chap 3-24
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25. Measures of Variation: Sample Standard Deviation Calculation Example
DCOVA
Sample Data (Xi) :
n = Mean = X = 16
A measure of the “average” scatter around the mean
Chap 3-25
Chap 3-25
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26. Measures of Variation: Comparing Standard Deviations
DCOVA
Data A
Mean = 15.5
S = 3.338
Data B
Mean = 15.5
S = 0.926
Data C
Mean = 15.5
S = 4.570
Chap 3-26
Chap 3-26
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27. Measures of Variation: Comparing Standard Deviations
DCOVA
Smaller standard deviation
Larger standard deviation
Chap 3-27
Chap 3-27
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28. Measures of Variation: Summary Characteristics
DCOVA
The more the data are spread out, the greater the range, variance, and standard deviation.
The more the data are concentrated, the smaller the range, variance, and standard deviation.
If the values are all the same (no variation), all these measures will be zero.
None of these measures are ever negative.
Chap 3-28
Chap 3-28
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29. Measures of Variation: The Coefficient of Variation
DCOVA
Measures relative variation
Always in percentage (%)
Shows variation relative to mean
Can be used to compare the variability of two or more sets of data measured in different units
Chap 3-29
Chap 3-29
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

30. Measures of Variation: Comparing Coefficients of Variation
DCOVA
Stock A:
Average price last year = $50
Standard deviation = $5
Stock B:
Average price last year = $100
Both stocks have the same standard deviation, but stock B is less variable relative to its price
Chap 3-30
Chap 3-30
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31. Measures of Variation: Comparing Coefficients of Variation
(continued)
Stock A:
Average price last year = $50
Standard deviation = $5
Stock C:
Average price last year = $8
Standard deviation = $2
DCOVA
Stock C has a much smaller standard deviation but a much higher coefficient of variation
Chap 3-31
Chap 3-31
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

32. Shape of a Distribution
DCOVA
Describes how data are distributed
Two useful shape related statistics are:
Skewness
Measures the amount of asymmetry in a distribution
Kurtosis
Measures the relative concentration of values in the center of a distribution as compared with the tails
Chap 3-32
Chap 3-32
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

33. Shape of a Distribution (Skewness)
DCOVA
Describes the amount of asymmetry in distribution
Symmetric or skewed
Left-Skewed
Symmetric
Right-Skewed
Mean < Median
Mean = Median
Mean > Median
Skewness
Statistic
< >0
Chap 3-33
Chap 3-33
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

34. Shape of a Distribution (Kurtosis)
DCOVA
Describes relative concentration of values in the center as compared to the tails
Flatter Than
Bell-Shaped
Bell-Shaped
Sharper Peak
Than Bell-Shaped
Kurtosis
Statistic
< >0
Chap 3-34
Chap 3-34
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35. General Descriptive Stats Using Microsoft Excel Functions
DCOVA
Chap 3-35
Chap 3-35
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36. General Descriptive Stats Using Microsoft Excel Data Analysis Tool
DCOVA
Select Data.
Select Data Analysis.
Select Descriptive Statistics and click OK.
Chap 3-36
Chap 3-36
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37. General Descriptive Stats Using Microsoft Excel
DCOVA
4. Enter the cell range.
5. Check the Summary Statistics box.
6. Click OK
Chap 3-37
Chap 3-37
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38. Excel output DCOVA Microsoft Excel descriptive statistics output,
using the house price data:
House Prices: $2,000,000
500, , , ,000
Chap 3-38
Chap 3-38
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39. Quartile Measures DCOVA
Quartiles split the ranked data into 4 segments with an equal number of values per segment
25%
25%
25%
25% Q1 Q2 Q3
The first quartile, Q1, is the value for which 25% of the observations are smaller and 75% are larger
Q2 is the same as the median (50% of the observations are smaller and 50% are larger)
Only 25% of the observations are greater than the third quartile
Chap 3-39
Chap 3-39
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40. Quartile Measures: Locating Quartiles
DCOVA
Find a quartile by determining the value in the appropriate position in the ranked data, where
First quartile position: Q1 = (n+1)/4 ranked value
Second quartile position: Q2 = (n+1)/2 ranked value
Third quartile position: Q3 = 3(n+1)/4 ranked value
where n is the number of observed values
Chap 3-40
Chap 3-40
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41. Quartile Measures: Calculation Rules
DCOVA
When calculating the ranked position use the following rules
If the result is a whole number then it is the ranked position to use
If the result is a fractional half (e.g. 2.5, 7.5, 8.5, etc.) then average the two corresponding data values.
If the result is not a whole number or a fractional half then round the result to the nearest integer to find the ranked position.
Chap 3-41
Chap 3-41
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42. Quartile Measures: Locating Quartiles
DCOVA
Sample Data in Ordered Array:
(n = 9)
Q1 is in the (9+1)/4 = 2.5 position of the ranked data
so use the value half way between the 2nd and 3rd values,
so Q1 = 12.5
Q1 and Q3 are measures of non-central location
Q2 = median, is a measure of central tendency
Chap 3-42
Chap 3-42
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43. Quartile Measures Calculating The Quartiles: Example
DCOVA
Sample Data in Ordered Array:
(n = 9)
Q1 is in the (9+1)/4 = 2.5 position of the ranked data,
so Q1 = (12+13)/2 = 12.5
Q2 is in the (9+1)/2 = 5th position of the ranked data,
so Q2 = median = 16
Q3 is in the 3(9+1)/4 = 7.5 position of the ranked data,
so Q3 = (18+21)/2 = 19.5
Q1 and Q3 are measures of non-central location
Q2 = median, is a measure of central tendency
Chap 3-43
Chap 3-43
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44. Quartile Measures: The Interquartile Range (IQR)
DCOVA
The IQR is Q3 – Q1 and measures the spread in the middle 50% of the data
The IQR is also called the midspread because it covers the middle 50% of the data
The IQR is a measure of variability that is not influenced by outliers or extreme values
Measures like Q1, Q3, and IQR that are not influenced by outliers are called resistant measures
Chap 3-44
Chap 3-44
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45. Calculating The Interquartile Range
DCOVA
Example box plot for:
Median
(Q2) X X Q1 Q3
maximum
minimum
25% % % %
Interquartile range
= 57 – 30 = 27
Chap 3-45
Chap 3-45
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46. The Five-Number Summary
DCOVA
The five numbers that help describe the center, spread and shape of data are:
Xsmallest
First Quartile (Q1)
Median (Q2)
Third Quartile (Q3)
Xlargest
Chap 3-46
Chap 3-46
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47. Relationships among the five-number summary and distribution shape
DCOVA
Left-Skewed
Symmetric
Right-Skewed
Median – Xsmallest
>
Xlargest – Median ≈
<
Q1 – Xsmallest
Xlargest – Q3
Median – Q1
Q3 – Median
Chap 3-47
Chap 3-47
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48. Five-Number Summary and The Boxplot
DCOVA
The Boxplot: A Graphical display of the data based on the five-number summary:
Xsmallest Q Median Q Xlargest
Example:
25% of data % % % of data
of data of data
Xsmallest Q1 Median Q3 Xlargest
Chap 3-48
Chap 3-48
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49. Five-Number Summary: Shape of Boxplots
DCOVA
If data are symmetric around the median then the box and central line are centered between the endpoints
A Boxplot can be shown in either a vertical or horizontal orientation
Xsmallest Q Median Q Xlargest
Chap 3-49
Chap 3-49
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50. Distribution Shape and The Boxplot
DCOVA
Left-Skewed
Symmetric
Right-Skewed Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3
Chap 3-50
Chap 3-50
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51. Boxplot Example DCOVA Below is a Boxplot for the following data:
The data are right skewed, as the plot depicts
Xsmallest Q Q Q Xlargest
Chap 3-51
Chap 3-51
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52. Numerical Descriptive Measures for a Population
DCOVA
Descriptive statistics discussed previously described a sample, not the population.
Summary measures describing a population, called parameters, are denoted with Greek letters.
Important population parameters are the population mean, variance, and standard deviation.
Chap 3-52
Chap 3-52
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53. Numerical Descriptive Measures for a Population: The mean µ
DCOVA
The population mean is the sum of the values in the population divided by the population size, N
Where
μ = population mean
N = population size
Xi = ith value of the variable X
Chap 3-53
Chap 3-53
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54. Numerical Descriptive Measures For A Population: The Variance σ2
DCOVA
Average of squared deviations of values from the mean
Population variance:
Where
μ = population mean
N = population size
Xi = ith value of the variable X
Chap 3-54
Chap 3-54
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55. Numerical Descriptive Measures For A Population: The Standard Deviation σ
DCOVA
Most commonly used measure of variation
Shows variation about the mean
Is the square root of the population variance
Has the same units as the original data
Population standard deviation:
Chap 3-55
Chap 3-55
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56. Sample statistics versus population parameters
DCOVA
Measure
Population Parameter
Sample Statistic
Mean
Variance
Standard Deviation
Chap 3-56
Chap 3-56
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57. The Empirical Rule DCOVA
The empirical rule approximates the variation of data in a bell-shaped distribution
Approximately 68% of the data in a bell shaped distribution is within ± one standard deviation of the mean or
68%
Chap 3-57
Chap 3-57
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58. The Empirical Rule DCOVA
Approximately 95% of the data in a bell-shaped distribution lies within ± two standard deviations of the mean, or µ ± 2σ
Approximately 99.7% of the data in a bell-shaped distribution lies within ± three standard deviations of the mean, or µ ± 3σ
99.7%
95%
Chap 3-58
Chap 3-58
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

59. Using the Empirical Rule
DCOVA
Suppose that the variable Math SAT scores is bell-shaped with a mean of 500 and a standard deviation of 90. Then,
68% of all test takers scored between 410 and (500 ± 90).
95% of all test takers scored between 320 and (500 ± 180).
99.7% of all test takers scored between 230 and (500 ± 270).
Chap 3-59
Chap 3-59
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60. The Normal Distribution Shape
f(X)
Changing μ shifts the distribution left or right.
Changing σ increases or decreases the spread. σ μ X
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Chap 6-60

61. The Standardized Normal
Any normal distribution (with any mean and standard deviation combination) can be transformed into the standardized normal distribution (Z)
Need to transform X units into Z units
The standardized normal distribution (Z) has a mean of 0 and a standard deviation of 1
Chap 6-61
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

62. Locating Extreme Outliers: Z-Score
DCOVA
To compute the Z-score of a data value, subtract the mean and divide by the standard deviation.
The Z-score is the number of standard deviations a data value is from the mean.
A data value is considered an extreme outlier if its Z-score is less than -3.0 or greater than +3.0.
The larger the absolute value of the Z-score, the farther the data value is from the mean.
Chap 3-62
Chap 3-62
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

63. Locating Extreme Outliers: Z-Score
DCOVA
where X represents the data value
X is the sample mean
S is the sample standard deviation
Chap 3-63
Chap 3-63
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

64. Locating Extreme Outliers: Z-Score
DCOVA
Suppose the mean math SAT score is 490, with a standard deviation of 100.
Compute the Z-score for a test score of 620.
A score of 620 is 1.3 standard deviations above the mean and would not be considered an outlier.
Chap 3-64
Chap 3-64
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

65. Translation to the Standardized Normal Distribution
Translate from X to the standardized normal (the “Z” distribution) by subtracting the mean of X and dividing by its standard deviation:
The Z distribution always has mean = 0 and standard deviation = 1
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall
Chap 6-65

66. The Standardized Normal Distribution
Also known as the “Z” distribution
Mean is 0
Standard Deviation is 1
f(Z) 1 Z
Values above the mean have positive Z-values, values below the mean have negative Z-values
Chap 6-66
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

67. Example
If X is distributed normally with mean of $100 and standard deviation of $50, the Z value for X = $200 is
This says that X = $200 is two standard deviations (2 increments of $50 units) above the mean of $100.
Chap 6-67
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

68. Comparing X and Z units $100 $200 $X 2.0 Z
(μ = $100, σ = $50)
2.0 Z
(μ = 0, σ = 1)
Note that the shape of the distribution is the same, only the scale has changed. We can express the problem in the original units (X in dollars) or in standardized units (Z)
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall
Chap 6-68

69. The Empirical Rule DCOVA
The empirical rule approximates the variation of data in a bell-shaped distribution
Approximately 68% of the data in a bell shaped distribution is within ± one standard deviation of the mean or
68%
Chap 3-69
Chap 3-69
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

70. The Empirical Rule DCOVA
Approximately 95% of the data in a bell-shaped distribution lies within ± two standard deviations of the mean, or µ ± 2σ
Approximately 99.7% of the data in a bell-shaped distribution lies within ± three standard deviations of the mean, or µ ± 3σ
99.7%
95%
Chap 3-70
Chap 3-70
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

71. Using the Empirical Rule
DCOVA
Suppose that the variable Math SAT scores is bell-shaped with a mean of 500 and a standard deviation of 90. Then,
68% of all test takers scored between 410 and (500 ± 90).
95% of all test takers scored between 320 and (500 ± 180).
99.7% of all test takers scored between 230 and (500 ± 270).
Chap 3-71
Chap 3-71
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

72. Finding Normal Probabilities
Probability is measured by the area under the curve
f(X) P ( a ≤ X ≤ b ) = P ( a
< X
< b )
(Note that the probability of any individual value is zero) a b X
Chap 6-72
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

73. Probability as Area Under the Curve
The total area under the curve is 1.0, and the curve is symmetric, so half is above the mean, half is below
f(X)
0.5
0.5 μ X
Chap 6-73
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

74. The Standardized Normal Table
The Cumulative Standardized Normal table in the textbook (Appendix table E.2) gives the probability less than a desired value of Z (i.e., from negative infinity to Z)
0.9772
Example:
P(Z < 2.00) = Z
2.00
Chap 6-74
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

75. The Standardized Normal Table
(continued)
The column gives the value of Z to the second decimal point
Z …
0.0
0.1
The row shows the value of Z to the first decimal point
The value within the table gives the probability from Z =   up to the desired Z- value .
2.0
.9772
P(Z < 2.00) =
2.0
Chap 6-75
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

76. General Procedure for Finding Normal Probabilities
To find P(a < X < b) when X is distributed normally:
Draw the normal curve for the problem in
terms of X
Translate X-values to Z-values
Use the Standardized Normal Table
Chap 6-76
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

77. Finding Normal Probabilities
Let X represent the time it takes (in seconds) to download an image file from the internet.
Suppose X is normal with a mean of 18.0 seconds and a standard deviation of 5.0 seconds. Find P(X < 18.6)
18.6 X
18.0
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall
Chap 6-77

78. Finding Normal Probabilities
(continued)
Let X represent the time it takes, in seconds to download an image file from the internet.
Suppose X is normal with a mean of 18.0 seconds and a standard deviation of 5.0 seconds. Find P(X < 18.6)
μ = 18
σ = 5
μ = 0
σ = 1 X Z 18
18.6
0.12
P(X < 18.6)
P(Z < 0.12)
Chap 6-78
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

79. Solution: Finding P(Z < 0.12)
Standardized Normal Probability
Table (Portion)
P(X < 18.6)
= P(Z < 0.12)
.02 Z
.00
.01
0.5478
0.0
.5000
.5040
.5080
0.1
.5398
.5438
.5478
0.2
.5793
.5832
.5871 Z
0.3
.6179
.6217
.6255
0.00
0.12
Chap 6-79
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

80. Finding Normal Upper Tail Probabilities
Suppose X is normal with mean 18.0 and standard deviation 5.0.
Now Find P(X > 18.6) X
18.0
18.6
Chap 6-80
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

81. Finding Normal Upper Tail Probabilities
(continued)
Now Find P(X > 18.6)…
P(X > 18.6) = P(Z > 0.12) = P(Z ≤ 0.12)
= =
0.5478
1.000 = Z Z
0.12
0.12
Chap 6-81
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

82. Finding a Normal Probability Between Two Values
Suppose X is normal with mean 18.0 and standard deviation Find P(18 < X < 18.6)
Calculate Z-values: 18
18.6 X
0.12 Z
P(18 < X < 18.6)
= P(0 < Z < 0.12)
Chap 6-82
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

83. Solution: Finding P(0 < Z < 0.12)
P(18 < X < 18.6)
Standardized Normal Probability
Table (Portion)
= P(0 < Z < 0.12)
= P(Z < 0.12) – P(Z ≤ 0)
.02 Z
.00
.01
= =
0.0
.5000
.5040
.5080
0.0478
0.5000
0.1
.5398
.5438
.5478
0.2
.5793
.5832
.5871
0.3
.6179
.6217
.6255 Z
0.00
0.12
Chap 6-83
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

84. Probabilities in the Lower Tail
Suppose X is normal with mean 18.0 and standard deviation 5.0.
Now Find P(17.4 < X < 18) X
18.0
17.4
Chap 6-84
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

85. Probabilities in the Lower Tail
(continued)
Now Find P(17.4 < X < 18)…
P(17.4 < X < 18)
= P(-0.12 < Z < 0)
= P(Z < 0) – P(Z ≤ -0.12)
= =
0.0478
0.4522
The Normal distribution is symmetric, so this probability is the same as P(0 < Z < 0.12) X
17.4
18.0 Z
-0.12
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall
Chap 6-85

86. Given a Normal Probability Find the X Value
Steps to find the X value for a known probability:
1. Find the Z-value for the known probability
2. Convert to X units using the formula:
Chap 6-86
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

87. Finding the X value for a Known Probability
(continued)
Example:
Let X represent the time it takes (in seconds) to download an image file from the internet.
Suppose X is normal with mean 18.0 and standard deviation 5.0
Find X such that 20% of download times are less than X.
0.2000 X ?
18.0 Z ?
Chap 6-87
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

88. Find the Z-value for 20% in the Lower Tail
1. Find the Z-value for the known probability
Standardized Normal Probability
Table (Portion)
20% area in the lower tail is consistent with a Z-value of -0.84
.04 Z …
.03
.05
-0.9 …
.1762
.1736
.1711
0.2000
-0.8 …
.2033
.2005
.1977
-0.7 …
.2327
.2296
.2266 X ?
18.0 Z
-0.84
Chap 6-88
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

89. Finding the X value 2. Convert to X units using the formula:
So 20% of the values from a distribution with mean 18.0 and standard deviation 5.0 are less than 13.80
Chap 6-89
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

90. Using Excel With The Normal Distribution
Finding Normal Probabilities
Finding X Given A Probability
Chap 6-90
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

91. The Covariance
DCOVA
The covariance measures the strength of the linear relationship between two numerical variables (X & Y)
The sample covariance:
Only concerned with the strength of the relationship
No causal effect is implied
Chap 3-91
Chap 3-91
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

92. Interpreting Covariance
DCOVA
Covariance between two variables:
cov(X,Y) > X and Y tend to move in the same direction
cov(X,Y) < X and Y tend to move in opposite directions
cov(X,Y) = X and Y are independent
The covariance has a major flaw:
It is not possible to determine the relative strength of the relationship from the size of the covariance
Chap 3-92
Chap 3-92
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

93. Coefficient of Correlation
DCOVA
Measures the relative strength of the linear relationship between two numerical variables
Sample coefficient of correlation:
where
Chap 3-93
Chap 3-93
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

94. Features of the Coefficient of Correlation
DCOVA
The population coefficient of correlation is referred as ρ.
The sample coefficient of correlation is referred to as r.
Either ρ or r have the following features:
Unit free
Ranges between –1 and 1
The closer to –1, the stronger the negative linear relationship
The closer to 1, the stronger the positive linear relationship
The closer to 0, the weaker the linear relationship
Chap 3-94
Chap 3-94
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

95. Scatter Plots of Sample Data with Various Coefficients of Correlation
DCOVA Y Y X X
r = -1
r = -.6 Y Y Y X X X
r = +1
r = +.3
r = 0
Chap 3-95
Chap 3-95
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

96. The Coefficient of Correlation Using Microsoft Excel Function
DCOVA
Chap 3-96
Chap 3-96
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

97. The Coefficient of Correlation Using Microsoft Excel Data Analysis Tool
DCOVA
Select Data
Choose Data Analysis
Choose Correlation & Click OK
Chap 3-97
Chap 3-97
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

98. The Coefficient of Correlation Using Microsoft Excel
DCOVA
Input data range and select appropriate options
Click OK to get output
Chap 3-98
Chap 3-98
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall

99. Interpreting the Coefficient of Correlation Using Microsoft Excel
DCOVA
r = .733
There is a relatively strong positive linear relationship between test score #1 and test score #2.
Students who scored high on the first test tended to score high on second test.
Chap 3-99
Chap 3-99
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall