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3*2*1 = 6 3! = 3*2*1 = 6
4
ABC ACB BAC BCA CAB CBA 6
Statistics for Business and Economics, 6/e © 2007 Pearson Education, Inc.
Chapter 4 4-2
Permutations Combinations
To find the number of Permutations of n items chosen r at a time,
you can use the formula
n! Practice: A basketball team consists of two centers, five forwards,
and four guards. In how many ways can the coach select a
n p r ( n r )! where 0 r n.
starting line up of one center, two forwards, and two
5! 5! guards?
Practice: 5 p3
( 5 3 )! 2!
5 * 4 * 3 60
Center: Forwards: Guards:
A combination lock will open when the right 2! 5! 5 * 4 4! 4 * 3
2C1 2 5 C2 10 4 C2 6
choice of three numbers (from 1 to 30, inclusive) 1 !1 ! 2!3! 2 * 1 2!2! 2 * 1
is selected. How many different lock C1 * 5 C 2 * 4 C 2
2
combinations are possible assuming no number is
repeated? Thus, the number of ways to select the
30 ! 30!
30 p3
( 30 3 )!
27!
30 * 29 * 28 24360 starting line up is 2*10*6 = 120.
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Statistics for Business and Economics, 6/e © 2007 Pearson Education, Inc.
Chapter 4 4-3
Important Terms
(continued) Examples
Intersection of Events – If A
and B are two events in a
S Let the Sample Space be the collection of all
sample space S, then the possible outcomes of rolling one die:
A AB
intersection, A Ç B, is the set of B
all outcomes in S that belong to
both A and B
Union of Events – If A S = {1, 2, 3, 4, 5, 6}
S
and B are two events in Let A be the event “Number rolled is even”
a sample space S, then
A B Let B be the event “Number rolled is at least 4”
the union, A U B, is the
set of all outcomes in S Then
that belong to either A = {2, 4, 6} and B = {4, 5, 6}
The entire shaded area represents A U B
A or B 11 13
Examples (continued)
Important Terms (continued) S = {1, 2, 3, 4, 5, 6} A = {2, 4, 6} B = {4, 5, 6}
Statistics for Business and Economics, 6/e © 2007 Pearson Education, Inc.
Chapter 4 4-4
15 17
Assessing Probability
Three approaches to assess probability of an uncertain
event
A Probability Table
1. classical probability
NA number of outcomes that satisfy the event Probabilities and joint probabilities for two events A
probabilit y of event A
N total number of outcomes in the sample space and B are summarized in this table:
Assumes all outcomes in the sample space are equally likely to occur
2. relative frequency probability B B
nA number of events in the population that satisfy event A
probabilit y of event A A P(A B) P(A B ) P(A)
n total number of events in the population
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Statistics for Business and Economics, 6/e © 2007 Pearson Education, Inc.
Chapter 4 4-5
P(CD AC) .2
P(CD | AC) .2857
P(AC) .7
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Statistics for Business and Economics, 6/e © 2007 Pearson Education, Inc.
Chapter 4 4-6
23 25
Statistics for Business and Economics, 6/e © 2007 Pearson Education, Inc.
Chapter 4 4-7
Introduction to
Marginal Probability Example Probability Distributions
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Statistics for Business and Economics, 6/e © 2007 Pearson Education, Inc.
Chapter 4 4-8
0 1/4 = .25
T H 1 2/4 = .50
Example: Toss 2 coins,
x P(x)
0 .25
2 1/4 = .25
x = # of heads, 1 .50
H T Probability
compute expected value of x: 2 .25
.50
E(x) = (0 x .25) + (1 x .50) + (2 x .25)
H H .25
= 1.0
0 1 2 x 33 35
x x
The individual probabilities sum to 1; Standard Deviation of a discrete random variable X
P(x) 1
x
2
(x ) 2 P(x)
x
Statistics for Business and Economics, 6/e © 2007 Pearson Education, Inc.
Chapter 4 4-9
37 39
Statistics for Business and Economics, 6/e © 2007 Pearson Education, Inc.
Chapter 4 4-10
Variance
2
nP(1- P)
What is the probability of one success in five nP(1- P)
observations if the probability of success is 0.1?
Standard Deviation
Examples
x = 1, n = 5, and P = 0.1 nP (5)(0.1) 0.5
Mean P(x) n = 5 P = 0.1
.6
.4
nP(1- P) (5)(0.1)(1 0.1) .2
n! 0.6708 0 x
P(x 1) P X (1 P)n X
x!(n x)! 0 1 2 3 4 5
5!
(0.1)1(1 0.1)51 nP (5)(0.5) 2.5
1! (5 1)! P(x) n = 5 P = 0.5
.6
(5)(0.1)(0.9) 4
nP(1- P) (5)(0.5)(1 0.5)
.4
.2
.32805 1.118 0 x
0 1 2 3 4 5
41 43
P(x) n = 5 P = 0.5
Here, n = 5 and P = 0.5 .6
.4
.2
0 x
0 1 2 3 4 5
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Statistics for Business and Economics, 6/e © 2007 Pearson Education, Inc.
Chapter 4 4-11
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Statistics for Business and Economics, 6/e © 2007 Pearson Education, Inc.
Chapter 4 4-12
3 0.0126
(.4) 2 (43.30) 2 (.6)2 (193.21) 2 2(.4)(.6)( 8250)
0.00
0 1 2 3 4 5 6 7 P
4 0.0016
x
5 0.0002 133 .04
6 0.0000
P(X = 2) = .0758
7 0.0000 The portfolio return and portfolio variability are between the values
for investments X and Y considered individually
49 62
The shape of the Poisson Distribution The aggressive fund has a higher expected
depends on the parameter : return, but much more risk
0.40
0.15
0.30 0.10
0.20
0.05
0.10
0.00 0.00
The Covariance of 8250 indicates that the two
0 1 2 3
x
4 5 6 7 1 2 3 4 5 6
x
7 8 9 10 11 12
investments are positively related and will vary
in the same direction
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Statistics for Business and Economics, 6/e © 2007 Pearson Education, Inc.
Chapter 4 4-13
66
64
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Statistics for Business and Economics, 6/e © 2007 Pearson Education, Inc.
Chapter 4 4-14
Statistics for Business and Economics, 6/e © 2007 Pearson Education, Inc.
Chapter 4 4-15
Statistics for Business and Economics, 6/e © 2007 Pearson Education, Inc.
Chapter 4 4-16
76 78
Empirical Rules
± 1 encloses about
68.26% of X’s
-1 +1 X
68.26%
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Statistics for Business and Economics, 6/e © 2007 Pearson Education, Inc.