You are on page 1of 5

International University IU

TA [SWC]
S
t
a
t
i
s
t
i
c
s

f
o
r

B
u
s
i
n
e
s
s

|

C
h
a
p
t
e
r

0
4
:

T
h
e

N
o
r
m
a
l

D
i
s
t
r
i
b
u
t
i
o
n


1

STATISTICS FOR BUSINESS
CHAPTER 04
THE NORMAL DISTRIBUTION

Standard Normal Distribution Normal Distribution


Z~N(,1
2
) X~N(,o
2
)

PART I
Finding probabilities of the normal distribution with given values
Step 01: Use the following formula to transform the normal random variable X, where
X~N(p,o
2
) to the standard normal random variable Z, where Z~N(0,1
2
).
Z =
X p
o

Step 02: Use the calculator or Table 2 (Areas of Standard Normal Distribution) in
Appendix C to compute the probabilities (or areas) of the normal distribution
based on the standard normal distribution.
CALCULATOR INSTRUCTION
Step No.01: Press MODE 3: STAT [ AC ]
Step No.02: Press SHIFT +1 [ STAT ] 7: DISTR
After that, the calculator will show you 4 available symbols.
However, we just pay attention to the first three ones.
International University IU

TA [SWC]
S
t
a
t
i
s
t
i
c
s

f
o
r

B
u
s
i
n
e
s
s

|

C
h
a
p
t
e
r

0
4
:

T
h
e

N
o
r
m
a
l

D
i
s
t
r
i
b
u
t
i
o
n


2

1 : P ( 2 : Q ( 3 : R (
+We use [ 1 : P ( ] to compute the probability between the
standard normal random variable z to , or P(Z <z)
+We use [ 2 : Q ( ] to compute the probability between the
standard normal random variable z to the mean or P(0<Z <z).
+We use [ 3 : R ( ] to compute the probability between the
standard normal random variable z to +. P(Z >z)
Step No.03: Press [ =] to get the result.
Sample
Under the system of oating exchange rates, the rate of foreign money to the U.S. dollar is
affected by many random factors, and this leads to the assumption of a normal distribution of
small daily uctuations. The rate of U.S. dollar per euro is believed in April 2007 to have a mean
of 1.36 and a standard deviation of 0.03. Find the following.
a. The probability that tomorrows rate will be above 1.42.
SOLUTION: p =1.36,o =0.03
Step 01: P(X >1.42) =P[
X-
c
>
1.42-1.36
0.03
=P(Z >2)
Step 02: MODE 3 : STAT [ AC ]
SHIFT +1 [STAT] 7 : DISTR 3 : R (2)
Then, press [ =] to get the result R(2) =0.02275
Summing up, P(X >1.42) =P(Z >2) =0.02275
b. The probability that tomorrows rate will be below 1.35.
SOLUTION: p =1.36,o =0.03
Step 01: P(X <1.35) =P[
X-
c
<
1.35-1.36
0.03
=P(Z <1/ 3)
Step 02: MODE 3 : STAT [ AC ]
SHIFT +1 [STAT] 7 : DISTR 1 : P (-1/3)
International University IU

TA [SWC]
S
t
a
t
i
s
t
i
c
s

f
o
r

B
u
s
i
n
e
s
s

|

C
h
a
p
t
e
r

0
4
:

T
h
e

N
o
r
m
a
l

D
i
s
t
r
i
b
u
t
i
o
n


3

Then, press [ =] to get the result P(1/ 3) =0.36944
Summing up, P(X <1.35) =P(Z <1/ 3) =0.36944
c. The probability that tomorrows exchange rate will be between 1.16 and 1.23.
SOLUTION: p =1.36,o =0.03
Step 01: P(1.16<X <1.23) =P [
1.16-1.36
0.03
<
X-
c
<
1.23-1.36
0.03

=P(20/ 3<Z <13/ 3)
Step 02: MODE 3 : STAT [ AC ]
SHIFT +1 [STAT] 7 : DISTR 3 : P (-13/3)
[ ]
SHIFT +1 [STAT] 7 : DISTR 3 : P (-20/3)
Then, press [ =] to get the result
P(13/ 3) P(20/ 3) =7.34888684510
-6
0
Summing up,
P(1.16<X <1.23) =P(20/ 3<Z <13/ 3) 0

Finding the values of X given a probability
Step 01: The probability that a normal random variable will be above (below, or
symmetric) its mean a certain number of standard deviations is exactly equal to
the probability that the standard normal random variable will be above (below,
or symmetric) its mean the same number of (its) standard deviations.
In particular, P(X >x) =P(Z >z)
P(X <x) =P(Z <z)
P(x
1
<X <x
2
) =P(z <Z >z)
Step 02: Find TA (Table Area)
International University IU

TA [SWC]
S
t
a
t
i
s
t
i
c
s

f
o
r

B
u
s
i
n
e
s
s

|

C
h
a
p
t
e
r

0
4
:

T
h
e

N
o
r
m
a
l

D
i
s
t
r
i
b
u
t
i
o
n


4

Step 03: Look inside Table 2 (Areas of the Standard Normal Distribution) in Appendix E for
the values of z corresponding to TA.
Step 04: Use the following formula to transform the standard normal random variable z
to the normal random variable x
x =p zo
Sample
PROBLEM 01: If X is a normally distributed random variable with mean 120 and
standard deviation 44, nd a value x such that the probability that X will
be less than x is 0.56.
SOLUTION: We have X~N(120,44
2
)
Step 01: We are looking for the value of the random variable X
such that P(X <x) =0.56. In order to find it, we look for
the value of the standard normal deviation Z such that
P(Z <z) =0.56.
Step 02: If the area to the left of z is equal to 0.56, the area
between 0 and z (the Table Area) is equal to
IA =0.56 0.5=0.06.
Step 03: We look inside Table 2 (Areas of Standard Normal
Distribution) in Appendix C for the z value corresponding
to IA =0.06 and find z =0.15 (actually, IA =0.0596,
which is close enough to 0.06).
Step 04: We need to find the appropriate x value. Here we use the
following equation.
x =p +zo =120+(0.15)(44) =126.6
PROBLEM 02 For a normal random variable with mean 19,500 and standard deviation
400, nd a point of the distribution such that the probability that the
random variable will exceed this value is 0.02.
SOLUTION: p =19,500,o =400
International University IU

TA [SWC]
S
t
a
t
i
s
t
i
c
s

f
o
r

B
u
s
i
n
e
s
s

|

C
h
a
p
t
e
r

0
4
:

T
h
e

N
o
r
m
a
l

D
i
s
t
r
i
b
u
t
i
o
n


5

P(X >x) =P(Z >z) =0.02
IA =0.50.02=0.48
z =2.05
Thus, x =p +(z)o =19,500+(2.05)(400) =18,680
PROBLEM 03 For X ~ N(32,7
2
), nd two values x
1
and x
2
, symmetrically lying on each
side of the mean, with P(x
1
<X <x
2
) =0.99.
SOLUTION: p =32,o =7
P(x
1
<X <x
2
) =P(z <Z <z) =0.99
IA =0.99/ 2=0.495
z =2.576
Thus, x
1
=p +(z)o =32+(2.576)(7) =13.968
x
2
=p +(z)o =32+(2.576)(7) =50.032

You might also like