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# Quantitative Techniques

Question.1 (b): How long will it take Rs.20,000 to double if it can be invested at 10% compounded continuously? Data: P=20,000 i=10% n= Time period? Solution: As we have formula, A A 2P
2

= = = =

## P (1+i) n 2P P (1+i) n (1+i) n

Taking Log on both sides, log2 = log2 = log2 = log2 = n n n = = = log (1+i) n n log (1+i) n log (1+0.1) n log (1.1) log2/ log (1.1) 0.30102/0.04139 7.27______Ans

## Muhammad irfan Akbar

Quantitative Techniques

(ii) Solution:

f(x)=20(x-5)

## f(x)=202(x-5) (1-0) f(x)=40(x-5) ______Ans

Question. 2 Explain the term population and sample. Explain why it is often desirable to collect information about the population by conducting a sample survey instead of complete enumeration? Ans: Population: "The term population is used in statistics to represent all possible measurements or outcomes that are of interest to us in a particular study." Sample: "The term sample refers to a portion of the population that is representative of the population from which it was selected."

Population

Sample

## Muhammad irfan Akbar

Quantitative Techniques

Sampling: The process of interfering something about a large group of elements by studying only a part of it is referred as sampling. Question.3: The average starting salary of an MBA degree holder from a certain university is Rs.15000 per month with a standard deviation of Rs.1000. Assuming the starting salaries follow a normal distribution: (a) What is the probability that the starting salary will be more than Rs.17000? Data: = salary per month = Rs. 15000

= Standard deviations =1000 P= (X>17000) =? Solution: P= (X>17000) =0.5-P (15000 X 17000) As we have formula, Z=(X- )/ Z= (17000-15000)/1000 Z=2 From chart P= (X>17000) P= (X>17000) =0.5-0.4772 =0.0228 ----------Ans

Question. 3 (b) Out of 200 degree holders, how many are expected to get salaries less than Rs.14000? n=No of degree holders=200 P= (X<14000) =? No of candidates having salary less than 14000=?
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Solution: P= (X<14000) =0.5- P (15000 X 14000) =0.5-0.3413 =0.1587----------Ans So, No of candidates having Expected salary less than 14000 = nP = 2000.1587 = 31.74 Ans: Approximately there are 31 candidates having Expected salary less than 14000 out of 200 candidates. Question. 4 (a): Explain the terms Geometric Mean and Harmonic Mean. Point out some the public system applications of the concept? Ans: GEOMETRIC MEAN: The geometric mean is relevant any time several quantities multiply together to produce a product. The geometric mean answers the question, "If all the quantities had the same value, what would that value has to be in order to achieve the same product?" For example, suppose you have an investment which returns 10% the first year, 50% the second year, and 30% the third year. What is its average rate of return? What these numbers mean is that on the first year your investment was multiplied (not added to) by 1.10, on the second year it was multiplied by 1.50, and the third year it was multiplied by 1.30. The relevant quantity is the geometric mean of these three numbers.

## Muhammad irfan Akbar

Quantitative Techniques

The geometric mean is an average calculated by multiplying a set of numbers and taking the nth root, where n is the number of numbers. For example, the geometric mean of 4, 8, and 16 is:

(4 8 16)1/3 = 8 A common example of when the geometric mean is the correct choice average is when averaging growth rates. Compound annual growth rate (CAGR) is an average growth rate over a period of several years. It is a geometric average of annual growth rates: CAGR = (ending value starting value) 1/ (number of years 1) If a company had sales of 10m in 2000 and 15m in 2005 then the CAGR of its sales is: (15 10) 1/5 - 1 = .084 = 8.4% If percentage growth rates are used it is important to remember to add one to each of them before calculating the geometric average. For example, the CAGR over two years of 10% one year and 20% the next is: (1.1 1.2)1/2 - 1 MERITS 1.It is a rigidly defined average. 2.It is based on all the observations. 3.In contrast to AM, it is less affected by extreme observations. 4.It gives more weights to smaller observations and vice-versa. DEMERITS

## Muhammad irfan Akbar

Quantitative Techniques

1.It is not very easy to calculate and hence is not very popular. 2.Like AM, it may be a value which does not exist in the set of given observations. 3.It cannot be calculated if any observation is zero or negative. USES 1.It is most suitable for averaging ratios and exponential rates of changes. 2.It is used in the construction of index numbers. 3.It is often used to study certain social or economic phenomena. HARMONIC MEAN: The harmonic mean of n observations, none of which is zero, is defined as the reciprocal of the arithmetic mean of their reciprocals. Calculation of Harmonic Mean: If there are n observations X1, X2..Xn then their HM is defined as:

MERITS: 1. It is a rigidly defined average. 2. It is based on all the observations. 3. It gives less weight to large items and vice-versa. 4. It is capable of further mathematical treatment. 5. It is suitable in computing average rate under certain conditions. DEMERITS:

## Muhammad irfan Akbar

Quantitative Techniques

1. It is not easy to compute and is difficult to understand. 2. It may not be an actual item of the given observations. 3. It cannot be calculated if one or more observations are equal to zero.
4. It may not be representative of the data if small observations are

## given correspondingly small weights.

Uses: In certain situations, especially many situations involving rates and ratios, the harmonic mean provides the truest average. For instance, if a vehicle travels a certain distance at a speed x (e.g. 60 kilometers per hour) and then the same distance again at a speed y (e.g. 40 kilometers per hour), then its average speed is the harmonic mean of x and y (48 kilometers per hour), and its total travel time is the same as if it had traveled the whole distance at that average speed.

In finance, the harmonic mean is used to calculate the average cost of shares purchased over a period of time. For example, an investor purchases \$1000 worth of stock every month for three months and the prices paid per share each month were \$8, \$9, and \$10, then the average price the investor paid is \$8.926 per share. However, if the investor purchased 1000 shares per month, the arithmetic mean (which turns out to be \$9.00) would be used.

Question. 4

## Muhammad irfan Akbar

Quantitative Techniques

(b): What are statistical averages? What are the desirable properties for an average to posses? Mention different types of averages and state why the arithmetic means are the most commonly used among them? Ans: Statistical averages: Some of statistical averages are elaborated below: 1-Mean: The arithmetic mean, often simply called the mean, of two numbers, the most common expression for the mean of a statistical distribution with a discrete random variable is the mathematical average of all the terms. To calculate it, add up the values of all the terms and then divide by the number of terms. This expression is also called the arithmetic mean. The mean of a statistical distribution with a continuous random variable, also called the expected value, is obtained by integrating the product of the variable with its probability as defined by the distribution. The expected value is denoted by the lowercase Greek letter mu (). 2-Median: The median of a distribution with a discrete random variable depends on whether the number of terms in the distribution is even or odd. If the number of terms is odd, then the median is the value of the term in the middle. This is the value such that the number of terms having values greater than or equal to it is the same as the number of terms having values less than or equal to it. If the number of terms is even, then the median is the average of the two terms in the middle, such that the number of terms having values greater than or equal to it is the same as the number of terms having values less than or equal to it. 3-Mode:

## Muhammad irfan Akbar

Quantitative Techniques

The mode of a distribution with a discrete random variable is the value of the term that occurs the most often. It is not uncommon for a distribution with a discrete random variable to have more than one mode, especially if there are not many terms. This happens when two or more terms occur with equal frequency, and more often than any of the others. A distribution with two modes is called bimodal. A distribution with three modes is called tri-modal. The mode of a distribution with a continuous random variable is the maximum value of the function. As with discrete distributions, there may be more than one mode. 4-Range: The range of a distribution with a discrete random variable is the difference between the maximum value and the minimum value. For a distribution with a continuous random variable, the range is the difference between the two extreme points on the distribution curve, where the value of the function falls to zero. For any value outside the range of a distribution, the value of the function is equal to 0. STATISTICAL MEAN: In Statistics, the statistical mean, or statistical average, gives a very good idea about the central tendency of the data being collected. Statistical mean gives important information about the data set at hand, and as a single number, can provide a lot of insights into the experiment and nature of the data. EXAMPLES: The concept of statistical mean has a very wide range of applicability in statistics for a number of different types of experimentation. For example, if a simple pendulum is being used to measure the acceleration due to gravity, it makes sense to take a set of values, and then average the

## Muhammad irfan Akbar

Quantitative Techniques

final result. This eliminates the random errors in the experiment and usually gives a more accurate value than a single experiment carried out. The statistical mean also gives a good idea about interpreting the statistical data. For example, the mean life expectancy in Japan is higher than that of Brazil, which suggests that on an average, the people in Japan are likely to live longer. There may be many viable conclusions about this, such as that it is due to better healthcare facilities in Japan, but the truth is that we do not know this unless we measure it. Similarly, the mean height of people in Russia is higher than that of China, which means that on an average, you will find Russians to be taller than Chinese. Statistical mean is a measure of central tendency and gives us an idea about where the data seems to cluster around. For example, the mean marks obtained by students in a test are required to correctly gauge the performance of a student in that test. If the student scores a low percentage, but is well ahead of the mean, then it means the test is difficult and therefore his performance is good, something that simply a percentage will not be able to tell. AVERAGE: The average of a distribution has been defined in various ways. Some of the important definitions are: (i) (ii) data". (iii) "An average is a single value within the range of the data that is used to represent all the values in the series. Since an average is "An average is an attempt to find one single figure to describe the whole of figures". "Average is a value which is typical or representative of a set of

## Muhammad irfan Akbar

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Quantitative Techniques

somewhere within the range of data it is sometimes called a measure of central value". FUNCTIONS AND CHARACTERSTICS OF AN AVERAGE: 1. To present huge mass of data in a summarized form: It is very difficult for human mind to grasp a large body of numerical figures. A measure of average is used to summaries such data into a single figure which makes it easier to understand and remember. 2. To facilitate comparison: Different sets of data can be compared by comparing their averages. For example, the level of wages of workers in two factories can be compared by mean (or average) wages of workers in each of them. 3. To help in decision-making: Most of the decisions to be taken in research, planning, etc., are based on the average value of certain variables. For example, if the average monthly sales of a company are falling, the sales manager may have to take certain decisions to improve it.

CHARACTERISTICS OF A GOOD AVERAGE: A good measure of average must possess the following characteristics: 1. It should be rigidly defined, preferably by an algebraic formula, so that different persons obtain the same value for a given set of data. 2. It should be easy to compute. 3. It should be easy to understand. 4. It should be based on all the observations. 5. It should be capable of further algebraic treatment.

## Muhammad irfan Akbar

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Quantitative Techniques

6. It should not be unduly affected by extreme observations. 7. It should not be much affected by the fluctuations of sampling. DIFFERENT STATISTICAL MEANS: There are different kinds of statistical means or measures of central tendency for the data points. Each one has its own utility. Following are some of imported measures of averages which are commonly used in business and industry: Arithmetic Mean Weighted average Mean Median Quantiles Geometric Mean Harmonic Mean

The arithmetic mean is frequently used in scientific experimentation, the geometric mean is used in finance to calculate compounding quantities, the median is used as a robust mean in case of skewed data with many outliers and the mode is frequently used in determining the most frequently occurring data, like during an election. The arithmetic mean is by far the most common average. It is the simplest to compute and the easiest to understand. In fact, most people are only familiar with the arithmetic mean; however, this is often inaccurate and misleading. Some merits of arithmetic means are defined below. MERITS ARITHMETIC MEAN

## Muhammad irfan Akbar

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Quantitative Techniques

Out of all averages arithmetic mean is the most commonly used average in statistics because of its merits mentioned below: 1. Arithmetic mean is rigidly defined by an algebraic formula. 2. Calculation of arithmetic mean requires simple knowledge of addition, multiplication and division of numbers and hence, is easy to calculate. It is also simple to understand the meaning of arithmetic mean, e.g., the value per item or per unit, etc. 3. Calculation of arithmetic mean is based on all the observations and hence, it can be regarded as representative of the given data. 4. It is capable of being treated mathematically and hence, is widely used in statistical analysis. 5. Arithmetic mean can be computed even if the detailed distribution is not known but sum of observations and number of observations is known. 6. It is least affected by the fluctuations of sampling. 7. It represents the centre of gravity of the distribution because it balances the magnitudes of observations which are greater and less than it. 8. It provides a good basis for the comparison of two or more distributions. Question.5: What are the best sources of data collection for the followings? Ans. (a) Secondary data Ans. (b) Secondary data
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## Ans. (c) Primary data Ans. (d)

Where, L=lower limit of the median class Pcf=preceding cumulative frequency of median class f=frequency of median class i=size of median class Ans. (e) Secondary data Ans. (f) Personal interviews

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