DS 520 Fall 2016 Exam 1.

October 13, 2016

Applied Statistical Modeling – DS 520

Exam 1
October 13, 2016

Exam Time: 2 hours and 30 minutes

General Instructions: This is an open book/open notes exam. You are not allowed to
search any resources on the internet. The exam is individual work only. You are not allowed
to consult anyone other than the exam proctor.

Please write final answers on this exam document. All final answers should appear in written
form, except when asked for a plot or simulation in Excel. While final answers should appear
on the exam, work may be done in Excel. You do not need to write out your work when the
logic can be followed in Excel. For the Excel file, please have a different worksheet for each
problem, with the problem number as the worksheet label.

When finished with the exam, you must turn in this exam document. Also, please submit
Excel work on Canvas. An Excel file containing data necessary to complete the exam is
located on Canvas, under Assignments → Exam 1.

PLEASE, CHECK YOUR CALCULATIONS CAREFULLY. Please, provide all details that
you think are necessary for the reader to understand how you derived your final answer, in
case the instructor would like to verify your reasoning for partial credit opportunities.
Each student has a responsibility to understand, accept, and comply with the
Universitys standards of academic conduct as set forth by the Code of Academic
Conduct. Cheating, collusion, misconduct, fabrication, and plagiarism are con-
sidered serious offenses.

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DS 520 Fall 2016 Exam 1. October 13, 2016

There are a total of 100 points plus 5 extra credit points possible.
Problem Max Points

1 20
2 20
3 30
4 15+5 extra
5 15

Total 100+5

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DS 520 Fall 2016 Exam 1. October 13, 2016

Problem 1. (20 points, 5 parts) Let X be a random variable representing the monthly
starting salary of a UM-D MBA. Suppose that X is Normally distributed with mean E[X] =
10 and standard deviation SD[X] = 2 (in $K). Determine the following:

a) P (X ≤ 12.5)

b) P (X > 12.5)

c) P (7.5 ≤ X ≤ 12.5)

d ) The 90th percentile; that is, determine the value x such that P (X ≤ x) = .90.

e) Solve for the value of a where P (10 − a ≤ X ≤ 10 + a) = .95. (Hint: Note that
10 = E[X].)

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DS 520 Fall 2016 Exam 1. October 13, 2016

Problem 2. (20 points, 8 parts) The following table contains the probability distribu-
tion for X = weekly demand for an item in number of units:

x 0 1 2 3 4 5
P (X = x) .10 .20 .35 .25 .05 .05

(The provided Excel file also contains this table.) Let Y denote the total demand over one
year (52 weeks):
Y = X1 + X2 + · · · + X52 ,

where the Xi are mutually independent and identically distributed according to the table
above.

a) Determine P (X > 3).

b) Determine P (X ≤ 4).

c) Determine E[X].

d ) Determine SD[X].

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DS 520 Fall 2016 Exam 1. October 13, 2016

e) Determine E[Y ].

f ) Determine SD[Y ].

g) According to the Central Limit Theorem (CLT), approximately, what is P (Y ≤ 100)?

h) According to the CLT, approximately, what is the 5th percentile of the total yearly
demand; that is, what is the value y such that P (Y ≤ y) = .05?

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DS 520 Fall 2016 Exam 1. October 13, 2016

Problem 3. (30 points, 10 parts) The Excel file contains data on a population of 100
registered voters. The column labeled “Woman?” indicates whether a voter identifies as a
woman (1) or not (0). The column labeled “Candidate A?” indicates whether a voter will
vote for Candidate A (1) or not (0). A poll is taken with 200 calls. The poll is equally likely
sampling with replacement. (Some voter will be called multiple times.) Let

 1, if a woman is called,
X=
 0, if not a woman.

Let 
 1, if Candidate A,
Y =
 0, if not Candidate A.

a) Fill out the following table with the joint probabilities for (X, Y ):

Y =1 Y =0
X=1
X=0

b) Determine P (X = 1|Y = 1).

c) Determine P (Y = 0|X = 1).

d ) Determine the marginal probability P (Y = 1).

e) Determine E[Y ].

f ) Determine SD[Y ].

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DS 520 Fall 2016 Exam 1. October 13, 2016

g) Let Ȳ denote the sample mean of 200 calls. Determine E[Ȳ ].

h) Determine SD[Ȳ ].

i ) Use Excel to plot the probability mass function for Ȳ . Indicate here (on this exam
sheet) the Excel worksheet name and cell (e.g., Worksheet “Problem 4” near cell H15)
where your plot is:

j ) Use Excel to create a Monte-Carlo simulation. For each trial of the experiment, there
are 200 calls. Use a Data Table to repeat the experiment 1,000 times. Then, plot the
resulting histogram for Ȳ . Indicate here where your histogram is:

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DS 520 Fall 2016 Exam 1. October 13, 2016

Problem 4. (15 + 5 extra points, 5 + 1 parts) The current price of a single share of
ACME stock is s0 = $100. Suppose that each year the stock price either goes up by a
multiplicative factor of u = 1.10 or down by a multiplicative factor of d = .90. For example,
consider a future 5-year period of time. If the stock first goes up, then down, up, up, and
finally down, then the realized 5-year stock price would be:

$100uduud = $100(1.10)(.90)(1.10)(1.10)(.90) = $107.811.

The probability that the stock price goes up in a year is 0.55. (The monthly moves are
assumed to be mutually independent.) Let the random variable Sn denote the n-year stock
price. (Hint: To better understand the problem, it may help to draw a tree representing the
possible stock price sample paths over 5 years.) Determine the following:

a) P (S1 = 100(0.90) = 90)

b) E[S1 ]

c) SD[S1 ]

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DS 520 Fall 2016 Exam 1. October 13, 2016

d ) Determine the probability that the stock price exactly follows the path in the example
above: the stock first goes up, then down, up, up, and finally down.

e) Determine P (S5 = $107.811) (that is, the ending price in part (d)).

f ) EXTRA CREDIT: Use Excel to plot the p.m.f. for S5 . Indicate on this paper where
in your Excel file the plot is. (Hint: You might want to choose a scatter plot in Excel.)

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DS 520 Fall 2016 Exam 1. October 13, 2016

Problem 5. (15 points, 3 parts) The goal of corporate stainability is to manage the en-
vironmental, economic, and social effects of a corporation’s operations so it is profitable
over the long term while acting in a responsible manner toward society. A Hill + Knowlton
Strategies survey found that 57% of U.S. respondents are more likely to buy stock in a U.S.
corporation, or shop at its stores, if it is making an effort to publicly talk about how it is
becoming more sustainable. In answering the following questions, assume then that 57% is
the (true) population mean. (You may invoke the CLT and use a Normal approximation for
your answers.)

a) Suppose you select a sample of 100 U.S. respondents. What is the probability that in
the sample, fewer than 57% are more likely to buy stock in a U.S. corporation, or shop
at its stores, if it is making an effort to publicly talk about how it is becoming more
sustainable?

b) Again consider a sample of 100 U.S. respondents. What is the probability that in the
sample, between 52% and 62% are more likely to buy stock in a U.S. corporation, or
shop at its stores, if it is making an effort to publicly talk about how it is becoming
more sustainable?

c) How do your answers to parts (a) and (b) change if instead the sample size is 400 U.S.
residents?

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