Part 1 Random Variables company has a probability of 0.

1 to leave the
1. Discrete Random Variables
2. Continuous Random Variables
Section 1.1 Discrete Random Variables
Definition If a random variable takes on
only a finite number of values or an infinite
sequence of values, it is called a discrete
random variable. For a discrete random
variable X, define the probability function
f(x) as
f(x) = P(X = x)
for all values x taken on by X.
Therefore, if f(x) is a probability function,
then
f(x) ≥ 0 for any x,
Σ f(x) = 1 where the summation runs
over all x such that f(x) > 0.
Example 1 Suppose each employee of a
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company this year, and 3 hourly employees
are chosen at random. Let X is the number of
employees, among the three employees
chosen, who will leave the company this year.
Let
f(x) = P(X = x) for x = 0, 1, 2 and 3,
then
f(0) = P(X = 0) = C3,0(0.1)0(0.9)3 = 0.729,
f(1) = P(X = 1) = C3,1(0.1)1(0.9)2 = 0.243,
f(2) = P(X = 2) = C3,2(0.1)2(0.9)1 = 0.027,
f(3) = P(X = 3) = C3,3(0.1)3(0.9)0 = 0.001,
f(0) + f(1) + f(2) + f(3) = 1.
Example 2 If X is the number of successes
in a binomial experiment, then X is a discrete
random variable with
P(X = x) = Cn,x px(1− p)n − x, x = 0, 1,…, n,
where
n = the number of trials,
p = the probability of a success on each
trial.
1 BUS1200-1 2

The standard deviation of X is defined as

Definition We say that a random variable X the non-negative square root of the variance
follows the binomial probability (if it exists) of X and is denoted by σ.
distribution (or just binomial distribution)
with parameters n and p if f(x), the Example 3 Let X be the number we obtain
probability function of X, is given by from rolling a fair die.
f(x) = Cn,x px(1 − p)n − x, x = 0, 1,…, n. x, the value of X 1 2 3 4 5 6
1 1 1 1 1 1
Definition f(x) = P(X = x)
6 6 6 6 6 6
The expectation, expected value or mean of 1 1 1
µ = Σ x f(x) = 1 ⋅ + 2 ⋅ + ⋅⋅⋅ + 6 ⋅
a discrete random variable X is defined as 6 6 6
Σ x f(x) = 3.5.
(if it exists) and is denoted by E(X) or µ, σ = Σ (x − µ)2 f(x)
2

where f(x) is the probability function of X and 1 1

= (1 − 3.5)2 ⋅ + (2 − 3.5)2 ⋅
the summation runs over all x such that f(x) > 6 6
0. 1
+ ⋅⋅⋅ + (6 − 3.5)2 ⋅
If µ = E(X) exists, the variance of X is 6
defined as 35 11
= =2 ,
Σ (x − µ)2 f(x) = [Σ x2 f(x)] − µ2 12 12
(if it exists) and is denoted by Var(X) or or
σ 2, where the summation runs over all x such σ 2 = [Σ x2 f(x)] − µ2
that f(x) > 0.
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 1 1 1 = (3 − 0.3)2(0.001) + (2 − 0.3)2(0.027)
= 12 ⋅ + 22 ⋅ + ⋅⋅⋅ + 62 ⋅ − 3.52
6 6 6 + (1 − 0.3)2(0.243) + (0 − 0.3)2(0.729)
11 = 0.27 (according to the definition of Var(X))
=2 .
12 or
Var(X) = 3(0.1)(0.9) = 0.27 (according to the
Theorem For a random variable X following theorem above).
the binomial distribution with parameters n
and p, Section 1.2 Continuous Random
E(X) = n p and Var(X) = n p (1 − p). Variables
Definition Suppose X is a random variable.
We say also that the mean and variance of If there exists a non-negative function f(x)
the binomial distribution with parameters such that
n and p are np and np(1 − p) respectively. b
P(a ≤ X ≤ b) = ∫ f( x)dx
a

Example 1 (continued) holds for all real numbers a and b with a ≤ b,

E(X) then X is called a continuous random
= 0(0.729) + 1(0.243) + 2(0.027) + 3(0.001) variable and f(x) is called a probability
= 0.3 (according to the definition of E(X)) density function of the random variable X.
or Therefore, if X is a continuous random
E(X) = 3(0.1) = 0.3 (according to the theorem variable with f(x) being a probability density
above). function, then
a
Var(X) P(X = a) = P(a ≤ X ≤ a) = ∫ f( x)dx = 0
a
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+∞
for any real number a; that is, the probability
of taking on any particular value is 0. ∫
−∞
x f( x)dx ,
Furthermore, we have (if it exists) and is denoted by E(X) or µ,
P(a < X < b) = P(a < X ≤ b) where f(x) is a probability density function of
X.
= P(a ≤ X < b) = P(a ≤ X ≤ b)
If µ = E(X) exists, the variance of X is
= the area under the graph of f(x) from a to b,
defined as
and +∞

∫−∞
+∞
f( x)dx = 1 ∫
−∞
( x − µ ) 2 f( x)dx

where the left hand side is the area between (if it exists) and is denoted by Var(X) or σ 2.
the whole graph of f(x) and the x axis. The standard deviation of X is defined as
the non-negative square root of the variance
Probability Density Function (if it exists) of X and is denoted by σ.
f(x)
Definition The function
1 2 2
f(x) = e −( x − µ ) ( 2σ )
2π σ
0 a b x with µ being any real number, σ being any
positive number, π = 3.14159… and e =
Definition The expectation, expected value 2.71828… is called a normal probability
or mean of a continuous random variable X is density function or just normal density
defined as function.

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For any normal density function to the left of the µ and that to the right is
1 2 2 are both 0.5);
f(x) = e −( x − µ ) ( 2σ ) ,
2π σ 2. the highest point is at x = µ;
it can be proved that 3. σ determines the shape of the curve (larger
+∞
values result in wider and flatter curves).
∫−∞
f ( x)dx = 1,
+∞ +∞
∫ xf ( x)dx = µ and ∫ ( x − µ ) 2 f ( x)dx = σ 2. Normal Density Function (µ = 0)
−∞ −∞

Normal Density Function (σ =1) 1

σ = 0.35
µ = −1 µ = 0 µ = 1 0.8
0.4
0.6
0.3
0.4 σ = 0.6
0.2 σ=2

0.1 −4 −3 −2 −1 0 1 2 3 4

−4 −3 −2 −1 0 1 2 3 4
Definition If a normal density function can
serve as a probability density function of a
Properties of the graph of a normal density continuous random variable X, we say that X
function (called a normal curve): follows the normal probability distribution
1. it is symmetric about the µ (hence the area (or just normal distribution) with mean µ
and standard deviation σ and write
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X follows N(µ, σ2). Example 2 Find P(−1 < Z < 1).

Especially when µ = 0 and σ = 1, we say that [Solution] By symmetry,
the normal distribution is standard. Usually P(−1 < Z < 1) = 2 P(0 < Z < 1)
we use Z to denote a random variable = 2(0.3413) = 0.6826.
following the standard normal distribution. Standard Normal Density

Area = 0.3413 Area = 0.3413

The standard normal distribution table gives
the values of P(0 < Z < z) for positive values
of z.
−3 −2 −1 0 1 2 3

Example 1 Find P(Z < 1).

[Solution] Example 3 Find P(Z > 1.58).
P(Z < 1) = P(Z ≤ 0) + P(0 < Z < 1) [Solution]
= 0.5 + 0.3413 = 0.8413. P(Z > 1.58) = P(Z > 0) − P(0 < Z ≤ 1.58)
Standard Normal Density
= 0.5 − 0.4429 = 0.0571.
Standard Normal Density
Area = 0.5 Area = 0.3413
Area = 0.0571
Area
= 0.4429
−3 −2 −1 0 1 2 3
−3 −2 −1 0 1 2 3

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Example 4 Find P(Z < −0.5).
[Solution] By symmetry, Example 6 Find P(−1.58 < Z < −1).
P(Z < −0.5) = P(Z > 0.5) [Solution]
= P(Z > 0) − P(0 < Z ≤ 0.5) Standard Normal Density Area = 0.4429
= 0.5 − 0.1915 = 0.3085. Area = 0.3413
Standard Normal Density
Area = 0.1915

Area = 0.3085
−3 −2 −1 0 1 2 3

P(−1.58 < Z < −1) = P(1.58 > Z > 1)

−3 −2 −1 0 1 3
= P(0 < Z < 1.58) − P(0 < Z ≤ 1)
Example 5 Find P(Z > −0.5). = 0.4429 − 0.3413 = 0.1016.
[Solution]
P(Z > −0.5) = P(Z > 0) + P(−0.5 < Z ≤ 0) Theorem If X follows N(µ, σ2) and we let
= P(Z > 0) + P(0.5 > Z ≥ 0) = 0.5 + 0.1915 X −µ
Z=
= 0.6915. Standard Normal Density σ
(called standardisation), then Z follows N(0,
Area = 0.1915 Area = 0.1915
1).

Example 7 Pep Zone sells auto parts and

−3 −2 −1 0 1 2 3 supplies including a popular multi-grade of
[Remark] P(Z > −0.5) + P(Z < −0.5) = 1. motor oil. When the stock of this oil drops to
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80 litres, a replenishment order is placed. The between $30,000 and $50,000.

store manager is concerned that sales are [Solution] Let X (in dollars) be the income
being lost due to stock-outs while waiting for of a randomly selected family. Then X
an order. It has been determined that X, the follows N(44483, 105002),
lead time demand, is normally distributed P(30000 < X < 50000)
with the mean being 60 litres and the 30000 − 44483 X − 44483
standard deviation being 16 litres. Find the = P⎛⎜ <
⎝ 10500 10500
probability of a stock-out. 50000 − 44483 ⎞
[Solution] X follows N(60, 162). < ⎟
10500 ⎠
P(X > 80) = P(−1.38 < Z < 0.53)
X − 60 80 − 60 ⎞
= P⎜⎛ > ⎟ = P(−1.38 < Z < 0) + P(0 ≤ Z < 0.53)
⎝ 16 16 ⎠ = P(0 < Z < 1.38) + P(0 ≤ Z < 0.53)
= P(Z > 1.25) = P(Z > 0) − P(0 < Z ≤ 1.25) = 0.4162 + 0.2019 = 0.6181,
= 0.5 − 0.3944 = 0.1056, where Z = (X − 44483) / 10,500 follows N(0,
where Z = (X − µ) / σ follows N(0, 1). 1).
Standard Normal Density

Example 8 Assume that the income of a

Area = 0.4162 Area = 0.2019
randomly selected family from a city follows
a normal distribution with the mean being
$44,483 and the standard deviation being
$10,500. Find the probability that the income −3 −2 −1 0 1 2 3

of a randomly selected family from the city is

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