Lecture 7 Presentation

Class 7
Rafael Mendoza-Arriaga
Rafael Mendoza Elementary Business Statistics Class 7
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Weighted Sums of Random Variables
Let X1 , X2 , . . . , Xn be any (independent or dependent) random variables, and let a1 , a2 , . . . , an be any n constants. Suppose Y is the weighted sum of the X s; Y = a1 X1 + a2 X2 + . . . + an Xn
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Expected value of a weighted sum of random variables E (Y ) = a1 E (X1 ) + a2 E (X2 ) + . . . + an E (Xn )
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Expected value of a weighted sum of random variables E (Y ) = a1 E (X1 ) + a2 E (X2 ) + . . . + an E (Xn ) Variance of a weighted sum of independent random variables
2 2 V ar(Y ) = a2 1 V ar (X1 ) + a2 V ar (X2 ) + . . . + an V ar (Xn )
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Expected value of a weighted sum of random variables E (Y ) = a1 E (X1 ) + a2 E (X2 ) + . . . + an E (Xn ) Variance of a weighted sum of independent random variables
2 2 V ar(Y ) = a2 1 V ar (X1 ) + a2 V ar (X2 ) + . . . + an V ar (Xn )
Variance of a weighted sum of 2 dependent random variables

2 V ar(Y ) = a2 1 V ar (X1 ) + a2 V ar (X2 ) + 2a1 a2 Cov (X1 , X2 )
Rafael Mendoza Elementary Business Statistics Class 7 McCombs
Example I
There are two investment options:
GM Stocks Gold
The state of the economy is uncertain: depression, recession, normal and boom. Depending on the state of the economy, the returns for investments change. Download GM vs Gold.xlsx Calculate the mean and standard deviation of returns from GM Stocks and gold. What is the covariance and correlation between GM Stocks and Gold? Simulate returns from GM stocks and Gold. Calculate the average and the standard deviation of returns in your sample. Also, calculate the covariance and correlation in your sample.
Example II
Assume the investor has $10,000. Calculate the mean and standard deviation of the returns from a portfolio that invests 60% of the budget into GM Stocks and the rest into gold. Can you calculate the mean and standard deviation of the returns from a portfolio that invests 70% of the budget into GM stocks?
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Apple Stock Price (12/9/0812/9/09)

100.06 98.21 95 98.27 94.75 95.43 89.16 89.43 90 85.74 86.38 85.04 85.81 86.61 86.29 85.35 90.75 94.58 93.02 91.01 92.7 90.58 88.66 87.71 85.33 83.38 82.33 78.2 82.83 88.36 88.36 89.64 90.73 94.2 93 90.13 91.51 92.98 93.55 96.46 99.72 102.51 97.83 96.82 99.27 99.16 94.53 94.37 90.64 91.2 86.95 90.25 91.16 89.19 89.31 87.94 88.37 91.17 88.84 85.3 83.11 88.63 92.68 96.35 95.93 95.42 99.66 101.52 101.62 101.59 107.66 106.5 106.49 109.87 106.85 104.49 105.12 108.69 112.71 115.99 118.45 115 116.32 119.57 120.22 118.31 117.64 121.45 123.42 120.5 121.76 121.51 125.4 123.9 124.73 123.9 125.14 125.83 127.24 132.07 132.71 132.5 129.06 129.19 129.57 124.42 119.49 122.95 122.42 126.65 127.45 125.87 124.18 122.5 130.78 133.05 135.07 135.81 139.35 139.49 140.95 143.74 144.67 143.85 142.72 140.25 139.95 136.97 136.09 136.35 135.58 135.88 139.48 137.37 134.01 136.22 139.86 142.44 141.97 142.43 142.83 140.02 138.61 135.4 137.22 136.36 138.52 142.34 142.27 146.88 147.52 151.75 152.91 151.51 156.74 157.82 159.99 160.1 160 160.03 162.79 163.39 166.43 165.55 165.11 163.91 165.51 164.72 162.83 165.31 168.42 166.78 159.59 164 164.6 166.33 169.22 169.06 169.4 167.41
169.45 170.05 168.21 165.3 165.18 166.55 170.31 172.93 171.14 172.56 172.16 173.72 175.16 181.87 184.55 185.02 184.02 184.48 185.5 183.82 182.37 186.15 185.38 185.35 180.86 184.9 186.02 190.01 190.25 189.27
190.47 190.81 190.02 191.29 190.56 188.05 189.86 198.76 204.92 205.2 203.94 202.48 197.37 192.4 196.35 188.5 189.31 188.75 190.81 194.03 194.34 201.46 202.98 203.25 201.99 204.45 206.63 207 205.96 200.51 199.92 205.88 204.44 204.19 200.59 199.91 196.97 196.23 196.48 193.32 188.95 189.87
($)
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Apple Stock Price (12/9/0812/9/09)
Time Plot: Apple Stock Prices

200 180 160 140 120 100 80 Jan Apr Jul Oct
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Calculating returns
A Return is the Stock Price Percentage Change, ri = 100 Si Si1 Si1
For example, The Apples stock price on December 8, 2009 was $188.95. On the next day (Dec. 09) the stock price moved to $189.87, this represents a 0.49% increase in price in one day, r = 100 189.87 188.95 = 0.49% 188.95
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Apple Stock Returns (12/10/0812/9/09)

-1.85 -3.27 3.44 -3.58 0.72 -6.57 0.30 0.64 -4.73 0.75 -1.55 0.91 0.93 -0.37 -1.09 6.33 4.22 -1.65 -2.16 1.86 -2.29 -2.12 -1.07 -2.71 -2.29 -1.26 -5.02 5.92 6.68 0.00 1.45 1.22 3.82 -1.27 -3.09 1.53 1.61 0.61 3.11 3.38 2.80 -4.57 -1.03 2.53 -0.11 -4.67 -0.17 -3.95 0.62 -4.66 3.80 1.01 -2.16 0.13 -1.53 0.49 3.17 -2.56 -3.98 -2.57 6.64 4.57 3.96 -0.44 -0.53 4.44 1.87 0.10 -0.03 5.97 -1.08 -0.01 3.17 -2.75 -2.21 0.60 3.40 3.70 2.91 2.12 -2.91 1.15 2.79 0.54 -1.59 -0.57 3.24 1.62 -2.37 1.05 -0.21 3.20 -1.20 0.67 -0.67 1.00 0.55 1.12 3.80 0.48 -0.16 -2.60 0.10 0.29 -3.97 -3.96 2.90 -0.43 3.46 0.63 -1.24 -1.34 -1.35 6.76 1.74 1.52 0.55 2.61 0.10 1.05 1.98 0.65 -0.57 -0.79 -1.73 -0.21 -2.13 -0.64 0.19 -0.56 0.22 2.65 -1.51 -2.45 1.65 2.67 1.84 -0.33 0.32 0.28 -1.97 -1.01 -2.32 1.34 -0.63 1.58 2.76 -0.05 3.24 0.44 2.87 0.76 -0.92 3.45 0.69 1.37 0.07 -0.06 0.02 1.72 0.37 1.86 -0.53 -0.27 -0.73 0.98 -0.48 -1.15 1.52 1.88 -0.97 -4.31 2.76 0.37 1.05 1.74 -0.09 0.20 -1.17 1.22 0.35 -1.08 -1.73 -0.07 0.83 2.26 1.54 -1.04 0.83 -0.23 0.91 0.83 3.83 1.47 0.25 -0.54 0.25 0.55 -0.91 -0.79 2.07 -0.41 -0.02 -2.42 2.23 0.61 2.14 0.13 -0.52 0.63 0.18 -0.41 0.67 -0.38 -1.32 0.96 4.69 3.10 0.14 -0.61 -0.72 -2.52 -2.52 2.05 -4.00 0.43 -0.30 1.09 1.69 0.16 3.66 0.75 0.13 -0.62 1.22 1.07 0.18 -0.50 -2.65 -0.29
2.98 -0.70 -0.12 -1.76 -0.34 -1.47 -0.38 0.13 -1.61 -2.26 0.49
(%)
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Apple Stock Returns (12/10/0812/9/09)
Time Plot: Apple Stock Returns

0.06 0.04 0.02 0.00 0.02 0.04 0.06 Jan Apr Jul Oct
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Probability Interpretation of a Histogram

Return Distribution
0.25 23.11 19.12
0.20
0.15 11.16 0.10 8.37
13.55
7.17 7.57
0.05 1.99 0.40 0.40 6
3.19 1.59 4 2 0 2 4 0.80 1.59 6
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Return Distribution
0.25 23.11 19.12
0.20
0.15 11.16 0.10 8.37
13.55
7.17 7.57
0.05 1.99 0.40 0.40 6
3.19 1.59 4 2 0 2 4 0.80 1.59 6
What is the probability that buying one share of Apple I will make more than 4% the next day?
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Return Distribution
0.25 23.11 19.12
0.20
0.15 11.16 0.10 8.37
13.55
7.17 7.57
0.05 1.99 0.40 0.40 6
3.19 1.59 4 2 0 2 4 0.80 1.59 6
What is the probability that buying one share of Apple I will make more than 4% the next day? P[r > 4%] = 1.59% + 0.8% + 1.59% = 3.98%

Return Distribution
0.25 23.11 19.12
0.20
0.15 11.16 0.10 8.37
13.55
7.17 7.57
0.05 1.99 0.40 0.40 6
3.19 1.59 4 2 0 2 4 0.80 1.59 6
What is the probability that buying one share of Apple I will loose money the next day?
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Return Distribution
0.25 23.11 19.12
0.20
0.15 11.16 0.10 8.37
13.55
7.17 7.57
0.05 1.99 0.40 0.40 6
3.19 1.59 4 2 0 2 4 0.80 1.59 6
What is the probability that buying one share of Apple I will loose money the next day? P[r < 0%] = 0.04% + 0.04% + ... + 11.16% + 19.12% = 44.63%
Probability Density Curves
A smooth curve may be a good description of the overall pattern of the data.
0.25 23.11 19.12
0.20
0.15 11.16 0.10 8.37
13.55
7.17 7.57
0.05 1.99 0.40 0.40 6
3.19 1.59 4 2 0 2 4 0.80 1.59 6
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Notation
For density curves we use the Greek letters and for the mean and standard deviation. For data that weve collected we use x and s for the mean and standard deviation
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Probability Density Curve
Total Area under the curve equal to 1
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Total Area under the curve equal to 1 Areas represent proportions
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Total Area under the curve equal to 1 Areas represent proportions Probability Distributions are generally described by:
mean () standard deviation ( )
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Mean
The interpretation of or x mean center balance point Mean: Balance Point
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Median
The median of a density curve is the equal areas point Median: Point in which both sides have the same Area
Notice that for Symmetric Distributions the Mean and Median coincide.
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Normal Distribution, a.k.a. Gaussian in honor of Gauss

Normal Distribution tted to data.
0.25 23.11 19.12
0.20
0.15 11.16 0.10 8.37
13.55
7.17 7.57
0.05 1.99 0.40 0.40 6
3.19 1.59 4 2 0 2 4 0.80 1.59 6
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0.25 23.11 19.12
0.20
0.15 11.16 0.10 8.37
13.55
7.17 7.57
0.05 1.99 0.40 0.40 6
3.19 1.59 4 2 0 2 4 0.80 1.59 6
Characteristics of the Normal Distribution:
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0.25 23.11 19.12
0.20
0.15 11.16 0.10 8.37
13.55
7.17 7.57
0.05 1.99 0.40 0.40 6
3.19 1.59 4 2 0 2 4 0.80 1.59 6

Symmetric
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0.25 23.11 19.12
0.20
0.15 11.16 0.10 8.37
13.55
7.17 7.57
0.05 1.99 0.40 0.40 6
3.19 1.59 4 2 0 2 4 0.80 1.59 6

Symmetric Single-peaked
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0.25 23.11 19.12
0.20
0.15 11.16 0.10 8.37
13.55
7.17 7.57
0.05 1.99 0.40 0.40 6
3.19 1.59 4 2 0 2 4 0.80 1.59 6

Symmetric Single-peaked Bell-shaped
Why is it called Normal?
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Normal Distributions
For Normal Distributions the exact density is given by two measures
1 2
mean (Center Measure) standard deviation (Spread or dispersion measure)
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1 2
For other distributions these two measures are not enough!
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1 2
For other distributions these two measures are not enough! As the curve becomes wider .
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1 2
Point of curvature change is located one standard deviation ( ) away from the mean ()
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1 2
Point of curvature change is located one standard deviation ( ) away from the mean () Applet: http: //demonstrations.wolfram.com/TheNormalDistribution/
The 68-95-99.7 Rule

68-95-99.7 Rule. Here, = 0 and = 1, Standard Normal Dist.
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The 68-95-99.7 Rule

P[ < x < + ] = 68%, (Here, P[1 < x < 1] = 68%)
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The 68-95-99.7 Rule

P[ < x < + ] = 68%, (Here, P[1 < x < 1] = 68%) P[ 2 < x < + 2 ] = 95%, (P[2 < x < 2] = 95%)
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The 68-95-99.7 Rule

P[ < x < + ] = 68%, (Here, P[1 < x < 1] = 68%) P[ 2 < x < + 2 ] = 95%, (P[2 < x < 2] = 95%) P[ 3 < x < + 3 ] = 99.7%, (P[3 < x < 3] = 99.7%)
The 68-95-99.7 Rule Example

Heights of young (American) men are approximately normal = 69 and = 2.5
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Heights of young (American) men are approximately normal = 69 and = 2.5 68% are between 69-2.5 and 69+2.5 (66.5 to 71.5)
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Heights of young (American) men are approximately normal = 69 and = 2.5 68% are between 69-2.5 and 69+2.5 (66.5 to 71.5) 95% are between 69-5 and 69+5 (64 to 74)
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Heights of young (American) men are approximately normal = 69 and = 2.5 68% are between 69-2.5 and 69+2.5 (66.5 to 71.5) 95% are between 69-5 and 69+5 (64 to 74) 99.7% are between 69-7.5 and 69+7.5 (61.5 to 76.5)
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Heights of young (American) men are approximately normal = 69 and = 2.5 68% are between 69-2.5 and 69+2.5 (66.5 to 71.5) 95% are between 69-5 and 69+5 (64 to 74) 99.7% are between 69-7.5 and 69+7.5 (61.5 to 76.5) Im 67 so Im still in the centered range!!
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Questions
Approximately what percent of young men are taller than 74 inches? What percent of young men are shorter than 66.5?
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Questions
Approximately what percent of young men are taller than 74 inches? 2.5% What percent of young men are shorter than 66.5?
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Questions
Approximately what percent of young men are taller than 74 inches? 2.5% What percent of young men are shorter than 66.5? 16% (so I guess that kind of makes me short, right?)
Standardizing
x is an observation from a distribution with mean and standard deviation
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Standardizing
x is an observation from a distribution with mean and standard deviation z is the standardized value: z= x
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Standardizing
x is an observation from a distribution with mean and standard deviation z is the standardized value: z= x
The standardized value is called the z-score
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The Standard Normal
The standard normal distribution N (0, 1) has = 0 and = 1
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The Standard Normal
The standard normal distribution N (0, 1) has = 0 and = 1 If x is N (, ), then the standardized variable, z ,
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The Standard Normal
The standard normal distribution N (0, 1) has = 0 and = 1 If x is N (, ), then the standardized variable, z , x has the standard normal distribution z=
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The Standard Normal N (, ) = N (0, 1)
Apples Return Dist. has x = 0.28% and s = 2.214%

0.25 23.11 19.12
0.20
0.15 11.16 0.10 8.37
13.55
7.17 7.57
0.05 1.99 0.40 0.40 6
3.19 1.59 4 2 0 2 4 0.80 1.59 6
Normal Dist. (Red) has = 0.28% and = 2.214%, i.e, N (0.28, 2.214)
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Apples Return Dist. has x = 0.28% and s = 2.214% (Zoomed Out)

0.4 0.3 0.2 0.1
Normal Dist. (Red) has = 0.28% and = 2.214%, i.e, N (0.28, 2.214)
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0.4 0.3 0.2 0.1
Normal Dist. (Red) has = 0.28% and = 2.214%, i.e, N (0.28, 2.214) Standard Normal Dist. (Blue) has = 0% and = 1%, i.e, N (0, 1)
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0.4 0.3 0.2 0.1
Normal Dist. (Red) has = 0.28% and = 2.214%, i.e, N (0.28, 2.214) Standard Normal Dist. (Blue) has = 0% and = 1%, i.e, N (0, 1) The Red Histogram, is the histogram of the standardized data. zi =
xi
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Another Interpretation of Standardizing

It helps to clearly see how many standard deviations a given point is away from the mean. Example: Mens heights N (69, 2.5)
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It helps to clearly see how many standard deviations a given point is away from the mean. Example: Mens heights N (69, 2.5) Say xi = 6 tall man, its z-score is zi = xi 72 69 = = 1.2 2.5
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His height is 1.2 standard deviations above average
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His height is 1.2 standard deviations above average 55 tall mans z-score is zi = xi 65 69 = = 1.6 2.5
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His height is 1.2 standard deviations above average 55 tall mans z-score is zi = xi 65 69 = = 1.6 2.5
His height is 1.6 standard deviations below average
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Excel: The Normal Distribution

Prob. Density Function (function or curve f (x))
0.4
Cummulative Dist. Function (area under the curve f (x))

0.4
0.3
0.3
0.2
0.2
0.1
0.1
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Excel: The Normal Distribution

Prob. Density Function (function or curve f (x))
0.4
Cummulative Dist. Function (area under the curve f (x))

0.4
0.3
0.3
0.2
0.2
0.1
0.1
f (x) =
2 1 2
(x)2 2 2
f (u)du = NORMDIST(X, , , 1) = NORMDIST(X, , , 0)

(u)2 2 2
= du
1 2
(u)2 2 2
du
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Excel Functions: Normal Distribution

N ORM DIST (x, mean, standard dev, cumulative)
X is the value for which you want the distribution. M ean is the arithmetic mean of the distribution. Standard dev is the standard deviation of the distribution. Cumulative is a logical value that determines the form of the function.
If cumulative is TRUE=1, NORMDIST returns the cumulative distribution function; if FALSE=0, it returns the probability density function.
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Excel: The Standard Normal Distribution ( = 0 and = 1)

Function N ORM DIST (x, mean, standard dev, cumulative) = N ORM DIST (z, 0, 1, 1) This function of z is the area under the standard normal curve to the left of z Table entry is area to the left of z !
0.4
0.3
0.2
0.1
P[random variable z ] = Area under the curve up to z
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Example: The Standard Normal Distribution

The proportion of men with heights 6 (72 ) or below
0.4
0.3
Area
0.8849
0.2
0.1
1.2 2
P[Height 1.2] = 88.5% (Area under the curve up to z )

Using x (i.e., non standardized values) x = 72, = 69 and = 2.5 N ORM DIST (x, , , cumul.) = N ORM DIST (72, 69, 2.5, 1) = 88.5% Using the z -score (z = (x )/ = 1.2), x = 1.2, = 0 and = 1 N ORM DIST (x, , , cumul.) = N ORM DIST (1.2, 0, 1, 1) = 88.5%
Example:The Standard Normal Distribution

The proportion of men with heights 6 (72 ) or above
0.4
0.3
Area
0.8849
0.2
0.1
1.2 2
P[Height > 1.2] = 100 P[Height 1.2] = 11.5%
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0.4
0.3
Area
0.8849
0.2
0.1
1.2 2
P[Height > 1.2] = 100 P[Height 1.2] = 11.5% Because the Area under the Curve is equal to 1 (i.e., 100%)!!
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0.4
0.3
Area
0.8849
0.2
0.1
1.2 2
P[Height > 1.2] = 100 P[Height 1.2] = 11.5% Because the Area under the Curve is equal to 1 (i.e., 100%)!! Again, note that excel will give you the Left tail, thus to obtain to obtain the right tail we need to use this property!

The proportion of men with heights 6 exactly
0.4
0.3
Area
0.8849
0.2
0.1
1.2 2
P[Height = 1.2] = 0%, Why?
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The proportion of men with heights 6 exactly
0.4
0.3
Area
0.8849
0.2
0.1
1.2 2
P[Height = 1.2] = 0%, Why? Because the area under a single point is 0!!!
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Normal Calculations
Expect questions like: What proportions are above y ? What proportions are below x?
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Normal Calculations
Expect questions like: What proportions are above y ? What proportions are below x? What proportions are between x and y ?
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Normal Calculations
Expect questions like: What proportions are above y ? What proportions are below x? What proportions are between x and y ? What proportions are outside of the range from x to y ?
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Examples
What proportion of young men are shorter than 5 5 ? (recall the z-score?)
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Examples
What proportion of young men are shorter than 5 5 ? (recall the z-score?) Proportion of young men are shorter than 5 5 = 5.48%
0.4
0.3
Area
0.0548
0.2
0.1
1.6
In Excel (and normalizing): P (X 65) = P z = 65 69 = P (z 1.6) = N ormdist(1.6, 0, 1, 1) 2.5

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Examples
What proportion of young men are between 5 5 and 6 ? (recall the z-score?)
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Examples
What proportion of young men are between 5 5 and 6 ? (recall the z-score?) Proportion of young men are between 5 5 and 6 = 83.01%
Total Area
0.4
0.8301
0.3
0.2
0.1
a2
1.6
1.2
How to obtain it?
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Examples
Proportion of young men are shorter than 6 = 88.49%
0.4 0.3
Area
0.8849
0.2
0.1
1.2 2
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Examples
0.4 0.3
Area
0.8849
0.2
0.1
1.2 2
Proportion of young men are shorter than 5 5 = 5.48%

0.4 0.3
Area
0.0548
0.2
0.1
1.6
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Examples
0.4 0.3
Area
0.8849
0.2
0.1
1.2 2
Proportion of young men are shorter than between 5 5 and 6 = 83.01%

Total Area 0.8301

0.4 0.3
=
4
0.4
0.3
0.2
0.1
a2
1.6
1.2
Area
0.0548
0.2
0.1
1.6
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Examples
0.4 0.3
Area
0.8849
0.2
Proportion of young men are shorter than between 5 5 and 6 = 83.01%

Total Area
0.4
0.1
0.8301
1.2 2
0.3
0.2

0.4 0.3
=
0.2
0.1
a2
1.6
1.2
z is after standardizing X , P (65 X 72 ) = P (1.6 z 1.2) = P (z 1.2) P (z 1.6) In Excel: = N ormdist(1.2, 0, 1, 1) N ormdist(1.6, 0, 1, 1)
Area
0.0548
0.1
1.6
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Backward Calculations: Inverse Functions
We are interested in calculating the outcome for a given probability for the Normal Distribution, using Excel
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We are interested in calculating the outcome for a given probability for the Normal Distribution, using Excel In other words:
1 2
Give me a Probability value (p) I will give you the value of z that corresponds to that probability, i.e., Ill give you z such that P (z z ) = p
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We are interested in calculating the outcome for a given probability for the Normal Distribution, using Excel In other words:
1 2
Give me a Probability value (p) I will give you the value of z that corresponds to that probability, i.e., Ill give you z such that P (z z ) = p
Recall : p corresponds to the left tail area
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Excel Functions: Backward calculations

N ORM IN V (probability, mean, standard dev )
P robability is a probability corresponding to the normal distribution. M ean is the arithmetic mean of the distribution. Standard dev is the standard deviation of the distribution.
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Excel Functions: Backward calculations

N ORM IN V (probability, mean, standard dev )
P robability is a probability corresponding to the normal distribution. M ean is the arithmetic mean of the distribution. Standard dev is the standard deviation of the distribution. You can use the distribution of x (non-standardized value) or z the standard normal x = N ORM IN V (p, , ) z = N ORM IN V (p, 0, 1) and then to obtain x = + z (since z = (x )/ ))
Backward Calculations
Find the value with a given proportion of the observations above (or below) it
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1 State the problem
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1 State the problem 2 Use the Inverse Function N ORM IN V to nd the value of z
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1 State the problem 2 Use the Inverse Function N ORM IN V to nd the value of z 3 Unstandardize: Solve for x in the equation
z =
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z =
4 Example:
How tall does a young man need to be to be in the tallest 10%?
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z =
4 Example:
How tall does a young man need to be to be in the tallest 10%? What values should we use in N ORM IN V (p, , )?
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z =
4 Example:
How tall does a young man need to be to be in the tallest 10%? What values should we use in N ORM IN V (p, , )? z = N ORM IN V (0.9, 0, 1) = 1.2816, then x = + z = 69 + 2.5 1.2816 = 72.2
McCombs

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Lecture 7 Presentation

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Class 7

Rafael Mendoza Elementary Business Statistics Class 7

Weighted Sums of Random Variables

Rafael Mendoza Elementary Business Statistics Class 7

Weighted Sums of Random Variables

Expected value of a weighted sum of random variables E (Y ) = a1 E (X1 ) + a2 E (X2 ) + . . . + an E (Xn )

Rafael Mendoza Elementary Business Statistics Class 7

Weighted Sums of Random Variables

Rafael Mendoza Elementary Business Statistics Class 7

Weighted Sums of Random Variables

Variance of a weighted sum of 2 dependent random variables

Rafael Mendoza Elementary Business Statistics Class 7

Apple Stock Price (12/9/0812/9/09)

Rafael Mendoza Elementary Business Statistics Class 7

Apple Stock Price (12/9/0812/9/09)

Time Plot: Apple Stock Prices

Rafael Mendoza Elementary Business Statistics Class 7

A Return is the Stock Price Percentage Change, ri = 100 Si Si1 Si1

Rafael Mendoza Elementary Business Statistics Class 7

Apple Stock Returns (12/10/0812/9/09)

Rafael Mendoza Elementary Business Statistics Class 7

Apple Stock Returns (12/10/0812/9/09)

Time Plot: Apple Stock Returns

Rafael Mendoza Elementary Business Statistics Class 7

Probability Interpretation of a Histogram

0.15 11.16 0.10 8.37

0.05 1.99 0.40 0.40 6

3.19 1.59 4 2 0 2 4 0.80 1.59 6

Rafael Mendoza Elementary Business Statistics Class 7

Probability Interpretation of a Histogram

0.15 11.16 0.10 8.37

0.05 1.99 0.40 0.40 6

3.19 1.59 4 2 0 2 4 0.80 1.59 6

Rafael Mendoza Elementary Business Statistics Class 7

Probability Interpretation of a Histogram

0.15 11.16 0.10 8.37

0.05 1.99 0.40 0.40 6

3.19 1.59 4 2 0 2 4 0.80 1.59 6

Probability Interpretation of a Histogram

0.15 11.16 0.10 8.37

0.05 1.99 0.40 0.40 6

3.19 1.59 4 2 0 2 4 0.80 1.59 6

Rafael Mendoza Elementary Business Statistics Class 7

Probability Interpretation of a Histogram

0.15 11.16 0.10 8.37

0.05 1.99 0.40 0.40 6

3.19 1.59 4 2 0 2 4 0.80 1.59 6

Probability Density Curves

0.15 11.16 0.10 8.37

0.05 1.99 0.40 0.40 6

3.19 1.59 4 2 0 2 4 0.80 1.59 6

Rafael Mendoza Elementary Business Statistics Class 7

Rafael Mendoza Elementary Business Statistics Class 7

Probability Density Curve

Total Area under the curve equal to 1

Rafael Mendoza Elementary Business Statistics Class 7

Probability Density Curve

Total Area under the curve equal to 1 Areas represent proportions

Rafael Mendoza Elementary Business Statistics Class 7

Probability Density Curve

Rafael Mendoza Elementary Business Statistics Class 7

The interpretation of or x mean center balance point Mean: Balance Point

Rafael Mendoza Elementary Business Statistics Class 7

Rafael Mendoza Elementary Business Statistics Class 7